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