Back to prior fourth Wave

Market Outlook: Interim or Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed significantly lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle 
FED Posture: Quantitative Tightening (QT)

Over a week ago, we made the case for a daily ending contracting diagonal in the cash S&P500 Index. Today, that case was proven out in that the start of the diagonal was taken out lower in much less time than it took to build the diagonal. The daily chart of the cash S&P500 below shows that count and that level.

S&P500 Cash Index - Daily - Larger Daily Ending Diagonal Proven

At the end of last week, we made the case for a 5:3:5:3:5 Leading Contracting Diagonal in the S&P500 Cash 15-minute chart. We made the case, that because of the structure, it could not be an ending diagonal. Today, as you probably know, the case for that diagonal was also made clear, as lower lows have followed it (and how!). The Dow closed lower by some 831 points.

Last night we made the case that a larger b wave could occur if prices popped up out of what looked like a triangle on the futures. But, we also cautioned very strongly 1) that the risk of an incorrect wave count in the short term was growing, 2) that the proposed triangle could morph into a different structure, and 3) that we couldn't predict the exact extent of the b wave . As it was the retracement was only 38.2%. You had to be watching the pre-market around 8 AM to see it happen, but an upward triangle invalidated to the down side, leaving only a downward triangle in it's entirety, or a 1-2-(i)-(ii). We will show you what we mean.

ES E-Mini S&P500 Futures - 30 Minute - Possible Triangle b wave

One problem in identifying this wave, is that not all of the triangle happened in the real market hours. Therefore, it is very possible to count the high micro ((A)), as just a second wave. But, within the triangle ((B)) remained above a, and ((D)) remained above ((B)) and ((E)) remained below ((C)). One had to be flexible enough to completely reverse their view - which is one of the things stops and invalidation allow.

Having said all that, days and days ago we put the alternate wave (v) marker on the chart, because there is one slippery way still to count the indexes to a top. Just back up minute (iv) to mid-August, and minuet iv to Aug 3. 

Further, we have placed a clear warning on daily chart. The current down wave is long enough that it has now overlapped the x wave of minute (ii). That violates an Elliott Wave guideline but not a rule.

Let me be clear, the only way the bull market can rescue itself from here as an impulse is to immediately form a triangle for minute (iv). These violent down waves could be consistent with that outcome. Yet, the momentum is still pointing downward. There is no sign of a turn as of the close. And once again, the risk of incorrect wave counts is high. Very high.

For a continued impulse wave upward, in no case can there be overlap on wave (i), and consider that an impulse is still in tact. We will have to see if an impulse is ruled out in the next couple of days. If it is, we'll address it.

We were expecting the Elliott Wave Oscillator on the daily chart - which was red and declining - to hit the zero line or go below it. It did. Now, how low will it go?

Have a good evening.
TraderJoe