Earnings Day

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

Propelled by higher earnings for Goldman, Netflix, United Healthcare and others, the futures were higher this morning, and the cash S&P500 Index gapped higher. Cash had closed Friday at 2,677 and prices opened up at 2,693, or +16 points. Prices traded higher throughout the day with only modest pull-backs until reaching 2,713. In the last half-hour, prices pulled back -7 points to close at 2,706.

It was a pretty bizarre day to count. From a non-Elliott Wave perspective, ES E-Mini S&P500 futures prices latched on to the upper daily Bollinger Band, traded slightly above it, reaching the 100-day SMA, and stalled there. (You are encouraged to review the daily ES chart to see where some of the 'smart money' was likely letting go of some long positions.) Back to wave counting. In order to avoid degree violations, the count from Friday is shown below on the S&P500 Index Cash 5-Minute Chart.

Figure 1 : S&P500 Cash Index - 5 Minute Chart - Five Up

Today's gap up can only be counted as .iii of a first wave, i,  otherwise, the next wave becomes too long for the next degree lower. That means that wave iii is shorter than wave i, and at this point in time, wave v is also shorter than wave iii, preserving adherence to the rule that wave iii may not be the shortest wave.

It was very hard to interpret this count until the very sideways running triangle was observed. Wave e of this triangle did cross back and overlap wave iii, just as is required for a running triangle. So, the bottom line result is that five-waves up can be counted. It also means that this wave qualifies as the .c wave of the potential hourly diagonal we have shown so many times now. Wave (v) of the diagonal is no longer than wave (iii) at this point in time. Here again is that potential hourly diagonal.

Figure 2 : S&P500 Cash Index - Hourly - Potential Diagonal

A closely as this is diagrammed, this wave is still a potential diagonal. Yes, today's price action helped fill the gap shown in black circle over on the left hand side of the chart. But, to remain true, wave (v) may not become longer than wave (iii). By measurement, that would not occur until 2,738.82 cash. So far, so good. That is quite a ways away. And with the triangle in today's 5-minute wave from Figure 1 - which is almost impossible to count without such a triangle - price movement needs to be watched closely to see if the lower trend line of the diagonal can be broken before the diagonal invalidates upward. Remember, triangles usually precede the last wave sequence in the current direction. At the close, price had not yet traveled below the e wave of the triangle. Price must do that IF it is to signal that a downward wave is likely occurring.

At this point in time, there are sufficient daily waves to suggest that the S&P500 Daily contracting triangle count would count in this fashion.

Figure 3 :S&P500 Cash - Daily - Potential Triangle

We don't know for sure yet whether the potential diagonal is a leading diagonal, as shown by the a wave, up, above to the potential (d) wave - or whether it is an ending diagonal for a second zigzag lower. For the first case, the (c) wave may not be be exceeded lower. In the second case, then it would be likely the (c) wave was exceeded lower.

From visual appearance, and usual Elliott Wave expectations, it is slightly more likely the triangle will play out. The daily Elliott Wave Oscillator (EWO) is still green and rising, so we must give some weight to what it is telling us.

Have a very good start to your evening.
TraderJoe