Back to Weekly Channel

US equity prices, as measured by the ES futures contract, retraced back to the lower channel line of the weekly up channel shown previously, and again in the chart below. Remember when we showed how prices were sticking to the channel before they initially collapsed lower? Well, after the gap up on Sunday night, prices rose every day this week and settled back under the underside of the channel.

As shown, prices bounced at the prior support and when the daily chart had two daily closes in-a-row below the lower daily Bollinger Band reducing the odds of the next close being outside of the band to roughly 3 - 5%, small odds. In the course of the week, as readers noted, the nested count invalidated as this wave up is too large to be a smaller degree second wave. It's good to see our blog followers are really beginning to get a handle on degree labeling. It makes writing about it worthwhile.

So, to get to the current wave count, the best valid downward count is this expanding diagonal which would be of the 3-3-3-3-3 variety as shown on the daily chart.

The price rise was very sharp, and on the daily chart the wave looks unsubdivided. So, the suspicion is that the rise is the a wave of this leg of minute-iv (circle-iv). And this wave seems to have ended - so far- at the prior support/resistance noted by the minute-i wave, the prior b wave, and the underside of the weekly channel. If so, that means a b wave lower could occur this week.

And it would be possible for such a b wave to be any of these structures: a) zigzag, b) flat, c) triangle, d) multiple zigzags, e) combination. I cover those again to indicate how much whippy trading might occur in the upcoming week. The only thing the b wave cannot do is travel below minute-iii (circle-iii).

Given the above, can prices move higher? Yes, in two ways: if the a wave is not fully complete yet or if the b wave forms as a Flat wave.

Given the above, can prices break the minute-iii (circle-iii) low? Yes, but not as the b wave. If the current low is broken it would just mean that this week's up wave is all of minute-iv (circle-iv), and the new daily low would be part of minute-v (circle-v).

In terms of minute-iv, the one thing it is not allowed to do is cross the high of minute-ii (circle-ii). This should be checked on an OHLC chart.

Because expanding diagonals tend to expand in time as well as in price, we are giving this wave much more time to develop. It could be a slog.

Have an excellent rest of the weekend.

TraderJoe