Post-Pattern Confirmation (PPC) - Step 1

Yesterday, in our post entitled 'Five-Up' we showed the likely five waves of an impulse wave upward. If that were the case, then for at least a correction lower, we should have been able to count on a smaller degree chart the 'five waves down'  of the start of a corrective wave as the first step in post-pattern confirmation to help confirm that the upward impulse was done. Today, we did do that, and since yesterday's chart was the SPY 15-minute chart, today's chart is the SPY 5-minute chart to represent the smaller degree. That chart is below.

SPY Cash - 5 Min Close Only - Diagonal

We first tried to count an impulse lower. Notice the 'base channel' in magenta. That did not work - plain and simple. When that channel was broken to the upside, we then switched to trying to count a diagonal wave.  And so far, that was successful. There are five clearly discernible but messy waves downward in a wedge. If you were counting it or trading it, you could feel the market pull back against every down wave trying not to give an inch. Only small sections whooshed like a third wave.

A couple of notes: we counted out the barrier triangle wave iv yesterday, and we said the wave would likely turn below the low of wave ((E)) of the triangle. It did. Second, the first down wave occurred largely in the overnight so - when you look at the futures - wave ((1)) down of the diagonal is also much longer in time than the third wave down.  The diagonal in its current form is good down to 4,433 and the futures near the close are at 4,444. If there is a violation of that level in the overnight, we simply reserve the right to reconfigure based on the futures. Lastly, I upped the degree at the high one level based on the overall length of the wave.

So, with a likely smaller degree 'five-down' at this point we have the first step in Post Pattern Confirmation (PPC) from the impulse upward. The second step in PPC for this count is a retrace that does not go over the high, and the third step in PPC is a lower low than the first five waves down.

Since the market started with a diagonal down odds lean towards a corrective wave lower. They certainly do not guarantee such. The market is whippy - thinking caps are required firmly in place.

Have a good start to the evening.

TraderJoe