Volatility Continues - 8

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed mixed to higher
SPX Candle: Lower High, Lower Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Today was a lower low day, and a lower high day. First, here is the daily chart. Today's candle has a lower low but a slightly higher close to help make a good show for television.

S&P500 Cash Index - Daily

Stocks as measured by the S&P500 Index had closed yesterday at 2,702. With the futures higher overnight, stocks gapped up to open at 2,710 and kept on climbing to a perfect 62% retrace of yesterday's candle in three waves at the 2,731 level. At 12:30 pm we called the end to the truncation of a contracting ending diagonal live and in real time in the chat room, and that likely meant the end to upward price movement.

Prices zigzagged lower into late afternoon, closed the opening gap again, made a new lower daily low at 2,698, and rebounded to close at the 2,704 level.

Tomorrow's gap direction and follow-through or reversal will be critical. IF we gap lower, and follow-through we can count a portion of an impulse lower. IF we gap up and follow-through, we can count a leading contracting diagonal lower. 

For educational purposes only we'll show you the potential contracting diagonal, and point out it's flaws. We are showing the impulse in the chat room.

S&P500 Cash - 15 Minute - Potential Diagonal

We have always counted the down wave to a as a contracting leading diagonal itself. It may be an 'a' wave or a 'i' wave, lower. The problems with this larger diagonal are that: 1) wave (v) takes up more time than does wave (iii); 2) the EWO on wave (v) is lower than on wave (iii); and 3) it is very hard to count wave (v) as a three-wave zigzag, although it can be done with an internal triangle. Finally, while not a flaw we have no evidence that downward price movement is over. There is not yet a higher daily high candle.

So, the diagonal would predict a retrace towards wave (iv). But, the flaws suggest that if tomorrow gaps down and keeps going that the middle of a third wave is a better option. A break of the upper declining trend line suggests the opposite - that the larger diagonal is in play. Again, we are counting the impulse in the chat room.

The slightly larger hourly picture is that price has only retraced 23.6% of the wave from 9 Feb to 16 Feb, and a larger retrace (at least) downward is expected.

Have a very good evening and remain flexible, patient and calm. It was just another day when they tried to convince you in the morning that stock prices were going to rise all day and they didn't. The sharp ones among you will note what time of the day the last several rallies have failed.

Have a very good start to your evening.
TraderJoe