Only Three Waves Up

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

The Eight Fold Path Method warned us yesterday to look for a down wave. See yesterday's chart to wave (4). The methodology was rigorously followed. Of course, the down movement started with the President's over night comments on a possible additional $100 billion in tariffs on China, and a -40 point drop in the ES futures.

When the cash market opened, the down wave eventually broke 38% of wave (3). That was a first warning. The EWO then exceeded -50% of the prior wave high, versus the usual expectation of +10% to -40%. That was the second warning. (It was excellent to have someone else in the chat room call that out). We then allowed down to the 50% x (3) level only, and we showed this chart.

S&P500 Cash Index - 15 Minutes - 50% x (3) Limit

At that point, we drew two fractal indicators on the chart. One in blue for an up fractal, and one in red for a down fractal. In order to assume an uptrend, we said that the up fractal had to break. It did not. The down fractal broke and we said "the best assumption is only three waves up". 

This is also per The Eight Fold Path Methodology. We had an up wave where (3) or (C) > 1.618 x (1) or (A). But, when the fourth wave didn't hold the EWO parameters, or the 50% x (3) measurement, then as always, it was clear "a count of 1,2,3 is the same as A,B,C until it is not."

This was then borne out by the fact that the cash market overlapped the X wave, and then formally invalidated an impulse up count by overlapping wave (1). So now this up wave must be labeled as an (A), (B), (C).

The market gathered speed to the downside after that, trading down to 2,586 before recovering to close at 2,604. To avoid any confusion, here is the re-labeled chart, below. Note how the EWO just "kept on going" after the -40% level of the prior wave was broken.

S&P500 Cash Index - Three Waves Up

Is it just more whippy behavior inside a triangle? We can see two ways to count within the triangle. We'll try to discuss those and look for a formal down count after the dust settles and see what looks best. For right now, you can see how well this methodology helps to prove when a suspected impulse is actually an impulse - or when it is clearly something else.

For now, have a very good start to your weekend!
TraderJoe