Monday, October 29, 2018

Gap Up, Gap Fill, Lower Low

Market Outlook: Probable Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed lower; DJUtil higher
SPX Candle: Higher High, Lower Low, Lower Close - Outside Candle 
FED Posture: Quantitative Tightening (QT)

The cash S&P500 Index closed Friday at 2,659. After a gap up at the outset, prices traveled as high as 2,707 a gain of about +48 points by about 10 AM ET. After running smack into the hourly down trend line that we have shown for days and days now, the market turned lower, filled the gap, and kept heading lower until it made new lows for the down move. (P.S. The line is finally so prominent that even TV channels and other websites are finally catching on.)

The new lower daily low on both the S&P500 cash, ES E-mini S&P500 Futures, and NQ 100 futures now insures that the hourly diagonal (if it holds up) can now be classified as a 'Leading' Diagonal since it's fifth wave did not truncate. Remember, Leading Diagonals are not allowed to truncate. Ending diagonals can truncate.

By about 15:45 ET, the S&P500 had reached an intraday low of 2,603 - a more than 100 point swing from high to low. In the last fifteen minutes, the market rebounded by about +38 points to close at 2,641. Here is the continued hourly chart.

S&P500 Cash Index - Hourly - Qualifies for Potential Leading Diagonal

So, at the present time the above structure does qualify for a potential contracting leading diagonal: Wave ((5)) is currently shorter than wave ((3)), wave ((3)) is shorter than wave ((1)), wave ((4)) is shorter than wave ((2)), wave ((4)) overlaps wave ((1)), and they are all three-wave sequences.

At the end of the day, prices were trading back inside the diagonal. I have one manner of counting a completed Elliott Wave Count on the five minute chart. On a one time basis I will show that chart below.

ES E-Mini S&P500 Index Futures - Five Minutes - Possible Downward Diagonal Completion

In other words, the (C) wave of ((5)) may, and I stress may, have completed as an expanding ending diagonal to end the downward diagonal overall. In the above chart wave 4 overlaps wave 1, and wave 3 is longer than wave 1. And, prices are trading back in that diagonal, as well!

The true test of whether the down turn is over, however, will only come if price can get above the hourly down trend line (in the first chart, currently at 2,725) and then back-test the trend line and hold it. I don't know this will happen: I have to see it happen.

However, there are some kinds of divergence at today's lows - including a divergence with fewer declining issues today. So, it bears close monitoring. If for any reason that wave ((5)) on the hourly chart becomes longer than wave ((3)) - presuming a flat correction is not made - then an impulse count must be considered as taking hold lower. So far, that has not happened. We will deal with it if it does.

If, on the other hand, this diagonal holds it's measurements, then we likely have our first minute wave (i), down.

Have a very good start to your evening and your week, and be very careful out there. Given how quickly there can be 50 - 100 point changes in direction this is no time for heroics.

TraderJoe

17 comments:

  1. Joe,
    I was looking at that expanding diagonal for C of 5 as it was happening. I dismissed it because I could not find it in my book. Am I missing something in the book from a later chapter? Is this something you've discussed before?

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    Replies
    1. Yes. I discussed the ending expanding diagonal as ending the DOW's upward count.

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  2. hi joe thank you for your work
    the minute 2 can go up from how much point?
    and in the end we finished wave I for late November or late December?

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  3. I try to understand the next waves
    that's why I ask my questions
    thank you joe

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    Replies
    1. I assume you know the typical Fibonacci retracement levels?

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    2. hi joe
      yes of course I know fibonacci

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  4. I counted today for myself in realtime. From today’s top I locked the 1 at 2666,48, the 2 at 2683,48, the 3 at 2603,72. With these price levels wave 3 does measure almost exactly twice of the distance of wave 1. If the rebound at the end does play out wave 4, this could bring alternation to wave 2.

    In your remarks I read that you are also not 100 sure that downward movement is over.
    What do you think is more likely?

    Thank’s for your update today and for your answer.

    ReplyDelete
    Replies
    1. Either is acceptable. Sometimes one watches to confirm, and doesn't just guess.

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  5. Joe-

    Impressive that you we’re able to foresee the potential for a diagonal here weeks ago.

    Two questions.
    -I though leading diagonals have a 5-3-5-3-5 structure, your labels seem to be 3-3-3-3-3.
    - what are the implications of a leading diagonal from a retrace and a continuation of down trend perspective?

    Thanks again!

    ReplyDelete
    Replies
    1. You stated something dogmatically. Leading Diagonals can in fact be either :3, :3, etc. or :5, :3, etc. It is only ending Diagonals which 'must' be :3, :3, etc.

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  6. Could this move from ATH be a 3 wave ABC correction with the C wave starting from Oct 17th high being an ending diagonal? Thanks

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    Replies
    1. No, in that case the C wave doesn't count well at all.

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  7. Could this move since ATH be the A wave of the impending ABC which results in a C wave down to 2200 range in 2919 followed by a final push to new nominal ATH before the bear attack?

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    Replies
    1. hi lezgetbizy
      you think we're going on 2200 for when?

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  8. depends on whether the ATH is viewed as a 5 of 3 or 5 of 5 since the 2009 lows. If prior, I am expecting a large degree wave 4 to take us down to about 2200-2300 next year. This would mean that a large degree wave 5 is still out there which can take us to another ATH by 2020-2021 before a multi decade grand cycle bear.

    Alternative count is that the 2009 bill run is over.

    ReplyDelete