If Not iv, then 'b' ? A Further Analysis

Five things seem wrong about counting the current down wave impulsively. Even though as per the EWO on the prior 2-hr chart of the SPY (see LINK), it certainly looks like a wave iv signature, it might be a wave 'b', instead. The five suspect items are listed below.

1. There's the funny business with the difference between the futures rollover contract chart, just the current month contract chart, and cash. The futures rollover chart has that higher high which can't be a second wave (see the first chart below).
2. The Dow and the Russell have overlapped downward; the NDX & S&P have not. The indexes are not acting consistently - we know because of the magnificent seven.
3. The latest downward wave is longer than the first downward wave in the ES. So, it should not be the subwave of an impulse (see the second chart below). Even given that fact, the daily Elliott Wave Oscillator is lower and not diverging.
4. Looking at the move from the top, several of the segments do not look impulsive. They did not start with decisive breaks and long candles to the downside. They were grinding.
5. Then, there is the weekly channel consideration.

This suggests two likely possibilities:1) It's only going to be A-B-C down of the larger wave 4 up in the alternate, or 2) we are in an expanding diagonal lower. Let's look at the charts.

Chart # 1 - SPX v ES Rollover - Counting Mismatch

As the chart shows the ES futures roll-over chart with the higher high would prevent counting a second subwave (as from yesterday's chart) as ii on 14 Sep. We pointed that out in the comments of prior posts. With this in mind, the next chart shows the longer wave downward wave than the first, and the lower Elliott Wave Oscillator (EWO).

Chart #2 - ES Roller-over Daily - Longer Wave & Lower EWO

As we said, several of the segments from the highs do not look impulsive. Given that, it may be possible to count the segments as a-b-c's as below. This might suggest the market is making a diagonal lower IF new lower lows are made.

Chart # 3 - ES Futures - Daily - Counting as a-b-c's

Then, there are the weekly channel considerations. As we have shown before, the best bullish alternate is that the fourth wave, 4, of an upward weekly channel holds in this index - as in Chart # 4, below.

ES Futures - Weekly - Channel Considerations

So, the three channel considerations are these:

1. If the channel breaks lower, it will be a very large, recognizable symbol of lower waves. Thus, it would likely initiate a third wave lower. The way this could happen from here is if the ES is still in the third wave of a diagonal.
2. Glenn Neely in Mastering Elliott Wave indicates that rarely, if ever, do impulse waves travel in an exact channel. It is usually zigzags that form in that manner. Recall, too, in the preferred count that wave C is still less than 1.618 x A. Our observation in the Eight-Fold-Path-Method states that usually the extended third wave would hike its head above the channel in an up move. That did not happen above.
3. Third - while not of critical import - it is worth noting that there is reverse alternation in the above wave. Wave red 2 would have formed as a Flat, and wave red 4 would have formed as a multiple zigzag. While not proof positive, usually large impulses form with the sharp second wave and the sideways wave as the fourth wave (unless a triangle forms). A triangle is temporality being ruled out for this wave because the downward wave seems to be a double-zigzag. Triangles usually start with a violent single zigzag. The down wave is just not very violent or speedy at all.

So, we will continue to watch for any signs of renewed selling near the 18-day SMA and the prior upward support/resistance zones. And, in particular, we will look for signs of the new lower low and downward break of the weekly channel. 

Why and how might this happen? While I don't delve much into fundamental analysis, perhaps the larger downward third wave would be created by poor earnings reports from the multinationals because of the higher dollar. We are about to go into earnings season. Then, after the third wave is made lower, a fourth wave up in a diagonal might coincide with the typical year-end rally. So, it is worthwhile to keep an eye on earnings this quarter as a further sign.

Have an excellent rest of the weekend.

TraderJoe