Thursday, May 3, 2018

More Whip and Froth - 2

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

Yesterday, we showed good cause why a i, ii up count in the major averages might invalidate. We said  that if 2,623.25 in the futures was exceeded lower, then a i, ii up count would not make sense, and it would make more sense that the (b) wave lower was still continuing. The futures count did invalidate downward, and stocks opened lower.

Early this morning, in the live chat room we posted this chart of the DJIA Futures (YM) on a 4-hour basis to show the likely count of the (b) wave, down, and we targeted the 78.6% retracement level, which coincided with the 200-day SMA on the S&P500. We used the Dow futures just because the chart was 'cleaner' and easier to count. That 78.6% retrace level was hit, and a bit more. But a new low for April was not made. And, then there was a sharp turn higher. Prices for the S&P500 cash index ended above that 200-day SMA.


DJIA Futures - YM 4hr - Triple Zigzag or Ending Diagonal

As an ending diagonal to a flat wave (b), this would make the (b) wave longer in time now than the (a) wave. In the Flat version, the (a) wave ended with the spike mid-way on the 13th, not with the ending print - as shown. As the triple zigzag version, the times of each wave are about equal. Either way, there is better symmetry between (a) and (b), now.

Within the triple zigzag or ending diagonal, the measurements are correct. Wave ((z)) is shorter than ((y)), wave ((y)) is shorter than ((w)), the second wave ((x)) is shorter than the first wave ((x)), and it overlaps wave ((w)). And, they can all be counted as three-wave zigzag sequences.

As spiffy as this pattern is, there is still considerable price risk in the market. It would be best to see the upper declining trend line exceeded to the upside, and then see that trend line hold on a back test. We also would like to see a fifth wave up of the current up wave. That did not quite happen by the futures settlement.

The outright bears reading this might wonder why the pattern is not also a 'leading diagonal' lower. Fair question. With lower odds it could be. But, at this point, there is no new lower than April, and so the odds still favor either the larger or smaller daily triangle.

In the smaller daily triangle, it is possible that this triple zigzag lower is a valid minute ((e)) wave of that triangle. As such, it would be the complex wave. But, there is still not sufficient evidence supporting that case either. Hence, I remain neutral and am simply counting the waves as best as possible - following the rules.

A reminder that tomorrow is the payroll employment report. I'm sure there will be more Whip and Froth.
Have a good start to your evening.
TraderJoe

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