Wave ((4)) of C Underway

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

As we explained yesterday, today we expected to see the ((4))th wave down, or part of the fourth wave down of the C wave impulse upward. Today is the last day I will show the 10-minute chart. It is getting too many candles on it. I will switch to a longer time frame chart tomorrow.

Before showing you the 10-minute chart, I thought it would be instructive to have a slight dissertation on the presence of diagonals and two rules of degree.

1. It is NOT acceptable to have two diagonals of the same DEGREE in the same wave.
2. Is IS acceptable to have two diagonals in the same wave if they are of DIFFERENT degree.

Here is today's S&P500 3-minute chart. It is just of today. Today's up wave did NOT make a higher high. I didn't think it would, because the (B) wave of wave ((2)) did make a higher high. And there would be no alternation if today's (B) wave did.

That is a very important point because in the cash market, the wave can be counted as a zigzag (A), (B), (C) wave downward. True as that is, please note the presence of TWO diagonals on the three minute chart (there are actually four, can you find the other two? hint: they are at smaller time frames).

The day started with a gap down which was filled. The gap wave was the (A) wave down. The retrace wave was the (B) wave. If you will look closely, you will see B of (B) did NOT travel below the start of the A wave of (B) allowing this whole wave to be constructed as a zigzag. But, just look at the C wave of (B)!

S&P500 Cash Index - 3 Minutes - Two Diagonals

It is what's known as the relatively rare, Ending Expanding Diagonal - just like the daily one in the DOW from the Apr low to the October high that I showed in previous posts. (See this LINK.) If they are so rare, what the heck are they doing in my charts?! Notice that wave ((v)) is longer than wave ((iii), and wave ((iii)) is longer than wave ((i)), and wave ((iv)) is longer than wave ((ii), and wave ((iv)) overlaps wave ((i)), but does not travel beyond the end of wave ((ii)), and they are all three-wave zigzag sequences - meeting all the criteria for an expanding ending diagonal. Great!

But now note it's degree designation. It is a C wave, which is part of a (B) wave, and NOT the same degree as the (C) wave, downward, that follows. And this downward (C) wave is ALSO an ending expanding diagonal, but this one is of the larger degree wave (C).

Yes, both diagonals are in the SAME zigzag wave. But both diagonals are of a DIFFERENT degree. Did the market bounce you out at all on Fed day? The diagonals are why. And there's that term 'degree' again.

So, now we have a 'perfect' zigzag, with prefect trend line touches to alternate well with wave ((2)) on the ten-minute chart. The problem with a 'perfect' zigzag is that it often leads to multiple zigzags. 

So now, here is the 10-minute chart again, the last time before I switch time frames.

S&P500 Cash - 10 Minutes - Retrace wave ((4))

Now we have a perfectly good wave ((4)) down. We said we were expecting the Elliott Wave Oscillator to go below the zero line, and it did. The only partial problem now is that wave ((4)) has not even attained a 23.6% retrace - let alone a 38.2% retrace. Is it enough? Technically, yes. It clearly overlaps wave ((3)), and has good alternation in that it counts as a zigzag. Late today it became just longer than wave ((2)) in time, and that is sweet! The typical relationship in an impulse wave. But, both because of it's depth, and the perfect nature of the zigzag, it can go lower if it wants and become a double zigzag.

So one must watch the opening gap direction for clues. I hope this was helpful.

Have a good evening,
TraderJoe