Longer Term - Can't Be Ruled Out

Looking at the longer-term monthly chart of the Dow futures (YM), it suggests that this pattern simply can't be ruled out at this time. This would be the classic "too far, too fast" pattern of the contracting ending diagonal in the Dow. We have not had an ending diagonal in the Dow or S&P 500 since 2015 & 2016. So a Fibonacci eight years later might be the right time to suggest it again.

Dow (YM) Futures - Monthly Close - Potential Diagonal

In order for this pattern to play out wave Primary ➂ would be 'required' to make a higher high in three waves. But not so much of a high that it destroys the contracting look of the pattern. And it definitely may not become longer than wave ➀ and remain contracting. At present the wave labeling looks approximately right. There could be only three waves down in the Dow from the 2022 high.

Please note the chart does not connote extreme bullishness on my part at this time. For example, I can easily see how a short term decline could occur as a deeper b wave. However, one thing this chart does having going for it is that all of the Primary numbered waves ➀, ➂, and ➄ would be taking place over the prior wave III high to express their motive character, and that is how Elliott originally envisioned it.

One thing not to like about the pattern is that wave ➁ did not reach down to the 62% level, so that would be a caution but does not break any rules.

A reason to favor the count, if wave Primary ➂ occurs, then it would most likely be on a divergence from the Elliott Wave oscillator as is most often the case in the contracting variety of diagonal. Another reason is that most trading - whether to the upside or downside - feels like the grinding that occurs inside of a diagonal or a triangle.

This count is short-term optimistic as it sees marginal new highs in equity markets. But it is longer-term much more pessimistic as the drop from a diagonal implies a major shift in equity market behavior. 

And I do want to caution all readers that I can still see ways the market could drop lower in the short run, particularly to make that deeper wave ➁, but those likely require breaking the dotted up trend line shown from 2020 to 2023, and that just hasn't happened yet. Until it does, we look for waves that fit the facts.

Have an excellent rest of the weekend.

TraderJoe