How You Can Tell - 6

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

The S&P500 closed fairly positively after another roller-coaster open. The market as measured by this index had closed yesterday at 2,726. With the futures higher overnight, the market gapped up to open +7 points higher, at 2,733, and traded up to 2,737 in the first thirty-minutes. Then, a slow, steady grinding decline began that closed the opening gap, and traded down to 2,723 which was the 38% Fibonacci retracement level. Then, beginning at about 13:30 ET, a somewhat spirited rally brought this index to up to new highs at 2,740 by 15:30. The last half-hour brought both an overlapping decline downward, and a closing rebound, to the 2,739 level.

Between yesterday and today, on the S&P500 5-minute chart, we were able to count most of five waves upward although there can be another new high. The rationale has to due with that " overlapping decline downward" we noted above, that you can see in the chart below - which was published in the live chat room.

S&P500 Cash Index - Two Day Five Wave Rally

Readers of this blog may recognize the overlapping structure of a potential 5th wave as an ending expanding diagonal. The overlapping retrace of this wave would be wave (iv), and it would have overlapped the small internal wave (i). As such, it is already longer than it's wave (ii). In order to complete an ending expanding diagonal, then, it's wave (v) should become longer than it's wave (iii) - which is the rally to 15:30 - and it should thus make a new high.

There is quite the 'base' or bull-flag provided by wave 4. And wave (iv) of 5 may have only back-tested that base. If that is correct, then the (v)th wave of 5 could be quite aggressive, and maybe have a parallel drawn off 3 as a target (i.e. the upper daily Bollinger Band?)

With the payroll employment report tomorrow, if this should not occur, then the rally ended at the location shown with a sub-par interior fourth wave and a down movement has started. With daily prices currently above the 18-day SMA, then there is a positive bias which favors the former scenario a bit over the latter.

S&P daily prices are still within the trend lines shown in yesterday's post. It "feels" like a triangle, but it might not be yet.

Have a very good start to your evening & stay patient, calm and flexible in the chop.
TraderJoe