Follow Up

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

Yesterday's bearish engulfing candle was not confirmed lower with a lower close day, as is typically required of daily candle patterns. From the hourly chart we presented at the top of yesterday's post, we weren't expecting it would be. Today's initial drop was 'testy' but the market came through and did not invalidate the potential diagonal. Here is yesterday's hourly chart updated.

S&P500 Cash - Hourly - Potential Diagonal c wave of minute (d)

For the diagonal to play out properly, then wave ((5)) must remain shorter than wave ((3)). As we said, wave ((4)), by the skin of its teeth, remained shorter than wave ((2)), but overlapped wave ((1)) as it should have. You can see from the Elliott Wave Oscillator, that there is a nice little wave ((4)) signature happening currently.

We must note that wave ((5)) most likely would make a marginal new high, but it does not have to. Because this is likely an ending diagonal pattern, then this fifth wave can fail to make that new high if it wants, and still remain a valid structure. Only in a leading diagonal must the fifth wave not fail.

From an invalidation standpoint, no part of wave ((5)) may be allowed to trade below the low of wave ((4)), and from a time signature viewpoint, wave ((3)) has consumed less time than wave ((1)), and wave ((4)) has taken less time than wave ((2)). So far, the wave structures fit. Now, let's see if they hold up.

Have a very good start to your evening.
TraderJoe