Driving Miss Crazy - 2

In a whippy session that we said could happen because the VIX is in the 20's (i.e. 23.8 towards the day's close) rather than in the 10's, price action created a Gap-Fill Two-For. Price as measured by the SPY cash index made a gap up, then traded down to fill today's gap, and in the process filled a gap down from yesterday. These are the two black circles shown on the chart. The gap that remains (see chart below) is from the 15th close to the 16th open (red circle).

SPY Cash - 30 min - Smaller Degree Potential Expanding Diagonal

We also suggested that analysts WAIT until the dotted up trend line shown was broken, back-tested with a subsequent back-test failure before deciding on the fate of further waves. This turned out to be sound judgement as the dotted trend line was not broken to the downside.

So, it should be clear that one downward count would be of an expanding diagonal downward off of the high. A wave v would be needed to the downside before potential wave iv invalidated to the upside. This is just the cash equivalent of the futures chart we showed yesterday. It's a little cleaner and the gaps are more prominent this way. But wait, do we really have to deal with another diagonal? Seriously? It's actually worse than that. Intraday yet another diagonal happened and we counted it in real time. Here is the final chart of that potential diagonal on the SPY 2-min chart.

Spy Cash - 2 Min - Even Smaller Degree Expanding Diagonal Upward

This is why we suggested to wait until that dotted uptrend line is broken and back-tested with a subsequent back-test failure. The trading bots are especially good at walking a trend line. Look at how little room there is between wave ((ii)) and wave ((iv)) - degree labels are just relative for illustration, here. Yes, they skin any premature trader alive if the trader acted on the suspicion that the trend line would break without seeing the actuality of it. Then they grind and grind, finally to explode to the upside in a fifth wave. 

First, notice how many overlaps there are. It's insane. Next notice the three-wave look to the sequences.  Look at the triangle that might indicate last wave ahead but does not - because it is a running triangle. Running triangles in an uptrending wave are bullish, not bearish. Fourth, notice the price extension in the fifth wave. So, even though the fifth wave is the extended wave in the sequence overall, it also put on a further extension to make the point! And Fibonacci fifth, notice price is trading back inside of the expanding pattern. If it is truly a 3-3-3-3-3 pattern then one conclusion that can be reached is that it is an ending diagonal. Time will tell.

Can we ever count an impulse? We did! Look at that wave from b to c within wave ((v)), up! It's a cleanly counted impulse. We hope to count more of them as time goes on. Right now, the diagonals are serving their purpose to keep everyone confused, and to not let you in on what the count might be. Certainly, if the market makers are going to engineer a big decline for the larger daily potential expanding diagonal downward, then they don't want you or I on board.

Back to the 30-min chart. Some technical analysts will see the price squeezed between the declining upper diagonal line and the up sloping dotted trend line and say the market is coiling. That's likely a valid assessment, and the question is which way will the coil break? Luckily, we don't have to deal with that if one just realizes there isn't a valid downward count until or unless the dotted trend line breaks to the down side is back-tested, and the back-test fails.

Have a good start to your evening and to your weekend.

TraderJoe