Interim Top Possible, Not Proven - 2

On our Thursday July 19th post (see this LINK), we took the cautious approach that an interim top was possible, not proven. That was, in fact, the title of that post. Further, we outlined the case for an alternate wave ((4)) location far to the right of the 30-minute chart that was shown. The reader should review that post if unfamiliar. It's now more than a week later.

On the short term time-frame, the alternate is what played out. And now, with 126 candles on the hourly chart (well within the 120 - 160 recommended by The Eight Fold Path Methodology) you can see a much more proportionately formed wave. Wave (3) of ((3)) is now clearly above the upper channel boundary - again showing the point of maximum momentum of the wave, wave ((4)) has attacked the lower channel boundary, requiring the typical channel re-draw from the wave ((2)) to the new wave ((4)) location, and wave ((5)) is now both much more proportional to wave ((1)), and it is shown to fail very near the channel mid-line. Also, there is good alternation between the sharp wave ((2)), and the very sideways wave ((4)), with wave ((4)) still having that higher (B) wave. Wave ((5)) likely ended on a divergence with the Elliott Wave Oscillator. The Elliott Wave Oscillator is now both red and below zero.

These are the usual, the typical, and the most common characteristics of the Elliott Impulse wave.

S&P500 Cash Index - Hourly - Well Formed Impulse Structure

Price is now trading below the lower channel boundary again, so it must be suggested that an interim top is again possible, but not proven. To make the case stronger for a downward wave, price should trade below the wave ((4)) marker to rule out the potential that the fifth wave is extending. (Price would have to re-enter the channel for a fifth wave extension). The case for an extended fifth wave within this minute (iii) wave is made quite a bit less likely, though, by the fact that wave ((3)), above, is longer than 1.618 times its wave ((1)). So, the down side would be favored here. Still, from the high of ((5)), only three waves down clearly appear on the hourly chart. So caution and patience are still required.

But now is where we really wish to speak about fifth wave extensions - as we refer to the weekly chart below.

S&P500 Cash Index - Weekly Chart - In Minor 5

So, from our previous post on Wednesday of this week (Jul 25) we noted that, within Minor 5, wave minute (iii) had just become longer than wave minute (i). And those are the circumstances from which an extended fifth wave, in this case, minute (v) could be created. Extended fifth waves are most often created when the third wave is longer, but only marginally longer, than the first wave. And that is exactly what we have here.

So, first, we must see how and if a wave minute (iv) forms, and whether it shows alternation with the flat for minute (ii). If it does, it could well be an extended fifth wave, (v), that takes the market to new highs or to its ultimate top. Of course, to do so, a minute (iv) wave must not overlap wave minute (i). If we should see downward overlap, we will address it at that time. Right now there simply is no evidence for it.

Have a very good start to your weekend.
TraderJoe