Over the Thin Red Line

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

Yesterday, on the daily ES futures, we said that since the close was over the SMA-18, that the market had a positive bias. Some disagreed, promptly entered shorts, and had their stops hit as the market did make a fresh new high today.  They told us how pointless wave counting seemed. It was better to use their trades. I have sympathy for them. Many times I have felt like wave counting is difficult at best - almost useless - until about five years ago when a number of concepts just began to 'click'. More about that later.

The new high was enough to create a 1.618 extension on a prior wave in the futures, and be high enough for a third wave, by measurement, and then some. It was also high enough to cross that "thin red line" we showed yesterday.

Here is the hourly chart of the ES E-Mini S&P500 Cash Index futures showing the current count of an impulse upward. The 1.618 Fibonacci extension from wave ((1)) to ((3)) is shown.

ES E-Mini S&P500 Cash Index Futures - Hourly - Likely Impulse In Progress

The wave locations shown are the only locations that allow counting without degree violations in the futures. There was a triangle for wave (iv) of ((1)), and there was an expanding diagonal for the c wave of (iv) of ((3)). Wave (iii) of ((3)) must have ended where shown or otherwise the longer wave to b would create a degree violation. That's ok. It made a flat wave to alternate with it's sharp (ii) wave of ((3)), and wave (iv) took more time than wave (ii), as well.

During the day, we gave guidance that IF cash crossed below the mid-point of the channel only then could one assume a corrective wave was underway. Futures broke the channel, cash never did : it was only a pull-back not one of the significant corrective waves. Still it provides a 'marker'.

Now, if wave ((2)) in the futures is a sharp, then wave ((4)) could either be a Flat or Triangle, with the flat preferred. That means price could go over the highs again.

According to the SMA-18, the bias remains positive, and the SMA-18 should provide some support to downward movement. The Hourly futures seem to be following The Eight Fold Path Method at this point, and the divergent high should be indicating wave (v) of ((3)) based on the EWO. We would expect the EWO to come back down towards the zero line at the end of wave ((4)), if it occurs as expected.

The day ended on an hourly bearish engulfing candle. There should at least be three waves down to start a flat or a triangle. The third wave likely also ended on an RSI divergence, a MACD divergence, and a volume divergence.

Have a good start to your evening.
TraderJoe