Or Else Too Complex..

Something was fishy. Something wasn't adding up. Several of us were counting a diagonal lower in the major U.S. indexes (S&P, Dow) because of the halting pattern of declines and immediate price pull-backs. We started counting as an expanding diagonal, but then that count blew up. Still it felt like a hesitating diagonal lower. It did not feel impulsive. Yet the counts were not legal. If you review the counts that people propose on line none of them follow the rules for an expanding diagonal because the fifth wave is not longer than the third wave. I have stated that I will not break the rules. With that statement in mind, here is the last remaining downward count I could find this weekend that did not break the rules. If you are a regular reader of this blog, please repeat the measurements I have shown to confirm them.

ES Futures - Weekly - Contracting Diagonal & Retrace

As you can see, I ran the count through the MotiveWave software engine to see if any errors or warnings were produced. None were. Happy day.

The problem I was having was that the up wave was else-wise becoming to complex with w-x-y's inside of a W-X-Y, and that is a clear indication of trouble. Also, looking at potential triangles did not produce the typical triangle forms - another sign of trouble.

So what do we have now? We have a contracting diagonal, lower, that does not break the rules. There is only one partial bar out of the pattern, and that is simply the most minor issue on the chart. Another potential issue is that while Minor 4 does overlap Minor 1, as it is supposed to, it is fairly short. Still, being short does not break the rules, and that is one key. A second key was that October drop appear to many of us to be only three waves. That is what got us potentially counting a Flat wave upward. The flat was incorrect. But, the only other place a three-wave drop fits is inside of a diagonal. Bingo!

Now in the upwards direction we have the expected deep retrace in the form of a simple zigzag. Further, within the zigzag, we have an expanding diagonal Minor A wave, and, so far, an impulse for the Minor C wave - outstanding alternation within the corrective pattern.

And just look at the Fibonacci ratios! I won't drone on about them. If you are an Elliott Wave student and frequent reader of this blog, you should go through the exercise of duplicating these measurements if you haven't already. The only one I will emphasize here is Minor 3 = 0.618 x Minor 1, which often occurs inside of diagonals.

Can we go over the top again? I try to keep three things in mind: 1) the (A)/(1) wave down is now longer in price and time than the 2020 Covid-19 drop (another measurement you should perform for your own confirmation), so it should start the next larger correction lower by degree-labeling;  2) the advance so far this year continues to be a narrow one led primarily by the AI stocks; and 3) sentiment is heating up with many analysts now flipping to bullish.

Could the analysis of going lower be incorrect? Yes, something may happen to tilt it. But, then, at least the chart above ends with a legal form, the contracting diagonal. In that case it would be an ending contracting diagonal. But until we know more, it may also be a leading diagonal.

And this means patience, calm and flexibility are still required. The Minor C wave up may simply not be over yet.

Have an excellent rest of the weekend.

TraderJoe