Some Pretty Precise Calls

U.S. Debt Clock: $22.81 Trillion; prev $22.81
ES Daily Candle: Lower High, Lower Low, Higher Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

With some fairly precise timing for a daily blog, yesterday we showed you the ES hourly futures with five waves down in a channel and we asked you to watch for a breach of that channel to the upside. If you followed the markets overnight, you know that the upper limit of the trend channel was in fact exceeded, and prices returned to a 62% retracement level, as below.

ES Futures - 1 Hr - b Wave?

So now it is entirely possible the b wave up is over and completed. It is also possible for the b wave to take on other shapes. The trade talks have been in the news again, and a tweet can jerk the market this way or that. If the b wave is over, then a c wave down could begin in earnest. Again, if the downward pattern is to remain corrective to the upward one, then the low of 2,855 should not be broken. 

Sharp readers will note that - as of this time - the downward wave is not yet longer in time than the upward wave. It only needs a few hours (probably in the overnight) to become so.

Also with some fairly precise timing, on the S&P500 cash market, we showed this five-minute chart in the day's comments.

SP500 Cash Index - 5 min - b Wave?

We showed the pattern when it was at ((3)) or y and said it could be part of a diagonal or its twin cousin the contracting triple zigzag. Before the end of the session, longer red bars appeared, and the degree of the wave likely changed. Because the timing within an actual diagonal is questionable, there is no reason why this upward contracting wave could not fit perfectly well as the b wave of the correction in the cash market rather than the futures.

We show you this wave to plainly illustrate that not all contracting structures of this type are true ending diagonals. In particular, you will note that waves ((1)) and ((3)) are not above the high of their previous highest wave (orange line), and therefore do not express the typical motive character that is seen in these waves in a true ending diagonal. Further, wave z is somewhat longer in time than wave y, and therefore, this also brings into question a true diagonal structure. It's hard to say about wave w because of the gap that is involved.

Similarly, this being an overall b wave, it is possible but very much less likely that the above structure is a leading diagonal within the b wave. We only mention this for completeness and do assess its probability to be very much lower at this time.

So, keep these criteria in mind as the numerous web-sites and other amateur analysts scream that the weekly chart must be an ending diagonal wave. We think not. It is likely just Intermediate (B) wave, higher, in a somewhat contracting shape. And we have been saying the same thing for months.

Have a good start to your evening.

TraderJoe