Volatility Continues - 7

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes were lower; DJTA, RUT higher
SPX Candle: Higher High, Lower Low, Lower Close - Outside Reversal Candle
FED Posture: Quantitative Tightening (QT)

In a session worthy of the volatility, prices gapped higher at the open today, and stayed higher through the mid-afternoon, making a higher high than yesterday's candle. Prices turned lower in the afternoon, and then began breaking to levels that created a lower low day. So, we had a higher high, a lower low and a lower close. That is the very definition of an outside reversal day down.

To be consistent here is the chart of the S&P500 cash index, daily, showing the turn around and at least temporary failure at the moving averages.

S&P500 Cash Index - Daily - Outside Day Down

The market apparently knows these moving averages are there.

Today's turnaround lower might have caused consternation to the perennially bullish, or those not comfortable counting waves intra-day. However, we were able to produce a chart like this one in the live chat room as the higher high was made.

S&P500 Cash Index - 5 Minute Chart - One Day

Today's gap up was in wave 3, shown above. Then, the S&P500 began an upward-to-sideways drift than initially looked like a contracting ending diagonal at (b). But, when the (e) wave overlapped wave 3 - just barely, but it is there - and a higher high than (b) was made, we called it a rather common "running triangle".  There is a very clear "thrust" out of the triangle, that we counted in five clear waves. Wave ii remained above wave (e), and there is no overlap problem with wave iv.

Since triangles almost always precede the last wave set in a sequence, it seemed like a turn was due. It was, and prices broke lower in quite an impulsive manner. In short, the "thrust" out of the triangle was the "short squeeze" to try burn those short in the market, and make the longs feel that an immediate new high was imminent - as some websites would lead one to believe. 

Then, the turn-around and lower daily low showed those who were watching what will be in store for us at some point - like it it or not. Today's cash price range was 47 points from high to low.

With the futures still lower tonight, it is likely the decline is not done. So stay patient, calm and flexible. You couldn't have done well today unless you were all of those.

Have a good start to your evening.
TraderJoe