How Good Counting Adds Flexibility

U.S. Debt Clock: $22.55 Trillion
ES Daily Candle: Higher High, Higher Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing Waves
Daily Swing Line: Up (Higher Low, Higher High)
Daily Bias: Up (Settle Over 18-day SMA)

Yesterday, we counted out an exacting diagonal on the five-minute chart. We did not call it an ending diagonal for a reason. Near the center of a chart such a structure can wind up being a leading diagonal. And, as the ES 15-minute chart, below, shows, it was! Recognizing that fact can help prevent some big mistakes.

ES 15-Minute - Position of Yesterday's Diagonal was Leading

It is nice to have an example to show particularly those newer to Elliott Wave, that not all diagonals are the "death knell" they often hear that they are. Sometimes, instead - as in this case - they are "the wind up before the pitch" or the leading variety of diagonal. Remember that leading diagonals may only be in the 1 or A wave positions on a chart.

Today was a powerful third wave that followed the diagonal. The chart above shows the market poised to make a fourth wave, but it hasn't yet. At today's ES settlement, with 119 candles on the chart - well within the recommended range of 120 to 160 from The Eight Fold Path Method - the Elliott Wave Oscillator is nearing the zero line again. Wave ((3)) of iii is on a peak of the EWO, and wave ((5)) of iii is on a divergence. So, right now, the wave fits an impulse, but it has not yet followed through with the needed form. If there is a drop in the overnight, or at least a running triangle followed by a fifth wave, then that fifth wave should occur on a divergence with the peak EWO.

Yesterday, I said if the market makes a higher high then it opens up several options. We have covered some of them before, but will I recap them in light of recent pricing on the weekend.  Again, it is not a problem so much in wave counting at this time as it is matching up the wave count to the money flows and news cycle here in the middle of the wave.

This is again a reminder that tomorrow is the last day of the trading month - with a propensity towards "window dressing" and some of the sloppiness that entails. Then, Monday/Tuesday will be the first trading days of the month with the likelihood of inflows from pension funds, 401k's, company bonuses, dividend reinvestment plans, etc. Oh, and  this first of the month will be the first of the month of September, which, in a study from 1950 to 2018, has the largest negative seasonality of any individual month overall. (Past performance is not necessarily predictive of future results.)

Have a good start to the evening - or to your long weekend if you are in the U.S. or otherwise celebrating the holiday or a vacation.

TraderJoe