Monday, September 13, 2021

SPY Completes Expanding Pattern

With about 90 candles on the SPY cash 30-minute chart, we called this afternoon for the end of the SPY's expanding pattern - which may be an expanding diagonal; which may be a leading expanding diagonal or which may be an ending expanding diagonal. As best we can tell, the pattern is of the 3-3-3-3-3 form as shown below.

SPY Cash - 30 min - Expanding Diagonal Completed

The pattern fits the form in every respect with wave ((5)) > ((3)) > ((1)) in both price and time, and wave ((4)) similarly greater than wave ((2)). Further, wave ((4)) overlaps wave ((1)) without going beyond the end of wave ((2)), and all the sequences can be counted as zigzags.

After the pattern completed (with a 'c' wave that made a contracting ending diagonal), then prices broke the 'c' wave contracting diagonal's upper trend line and made a 23.6% retrace, so far.

While the diagonal is likely completed, downward movement does not have to be. On the ES daily chart, price is below the 18-day SMA, so the bias is lower, and the swing-line indicator has the trend down with lower highs and lower lows. But, price is not down to the lower daily Bollinger Band, yet, although the daily slow stochastic is in over-sold territory.

The Fibonacci retrace ruler has been placed on the chart above. The larger wave pattern down to the low is really messy at this point. It CAN be 'any' of these three wave labels given the Principle of Equivalence a / i or c. The c wave label applies if the wave is an 'ending' diagonal rather than a 'leading' one. What matters most next are 1) if closes stay below the 18-day SMA, 2) if a retrace stays below the high, or 3) if today's cash or futures low is exceeded lower.

Until we know more, the current wave labels provide little guidance. As stated in the comments, when the market wants to, I have seen these pattern break lower much more quickly than expected, say, if the Smart Money wants to get price down to that daily lower Bollinger Band.

Have an excellent start to the evening.

TraderJoe

11 comments:

  1. 👍 I agree. Crazy things happen around option expiration Friday and week after by market makers. Something to be aware of. ATB

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  2. Would love me a wedge backtest on the Dow.

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  3. Good morning all. After the CPI report, here is the ES 30-min intraday wave-counting screen with updated Daily Pivot Points (classic calculation) and local fractals. The most recent up (green) fractal has been broken upward. By now, I hope all are capable of generating this screen.

    https://www.tradingview.com/x/FFfKbGKC/

    A local channel has been drawn upward in addition, with the R1 daily pivot still overhead.

    TJ

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    1. ..reminder than the 18-day SMA is at about 4,490; and a further reminder than if a zigzag completes upward, it 'could' start a third wave down after it, BUT, given the brevity of the move in the cash market, so far, a further correction like a double-zigzag or a larger Flat could extend the move in 'time'. So, be flexible in one's thinking & counting.

      TJ

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  4. Aside - MJ - sentiment just right for successful test of support?

    https://www.mediafire.com/view/a87fswsvenseam2/MJpot.PNG/file

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  5. SPY cash - fyi - opening gap closed.
    TJ

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  6. ES 30-min: down to 90% qualifying for a Flat wave.
    TJ

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  7. Wondering if the action in $TRAN could be a preview of coming attractions. Top in early May, long grind down into August before its first significant rally, which has now failed. Maybe the $INDU top on Aug 16 corresponds to the top in the Trannies.

    The $TRAN had a weak rally attempt the week of May 10, but it failed quickly. Then it declined for almost 3 months to its Aug 4 low. In that decline, it looks like 5 > 3> 1.

    $INDU had a strong rally attempt from Aug 19 to Sep 2, but that failed. (Maybe a failed 5th wave).

    The 34-ema for $TRAN peaked on June 7th, about 20 trading days after its price peak. The 34-ema for $INDU peaked on Sep 7, 14 trading days after its price peak.

    So maybe we just zigzag our way down into November. Then the Santa Claus rally, which, like the recent Trannie rally, fails after 20 days or so.

    Why? The Federal government is tapering its stimulus. The Fed would like to taper its stimulus due to rising concerns about inflation (cf. the article TJ posted about how much money poured into stocks [and housing] in 2020). Also, many tech stocks are now priced on a P/S ratio. Back in Graham & Dodd days, that was P/E. There is quite a difference.

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  8. SPY (hrly) - observations

    https://www.mediafire.com/view/lvsrc5re2dkj7a6/spy60.PNG/file

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    1. ..just fyi - from what I can see, SPY has now closed that gap.
      TJ

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  9. The quiet catalyst is the imoending Evergrande bankruptcy, which will force rates, which have ALWAYS been the ultimate arbiter of equity prices. FEDspeak notwithstanding. They will have to tighten...and we all know what that means...

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