Into the Real Mess - 2

Due to overlaps, we have been suggesting that the wave down off the recent all-time high might be in the form of a diagonal in the ES futures. We showed one view of an expanding diagonal but the criticism of it (rightly so) is that the third wave would be shorter in time than the first - which runs afoul of a guideline for an expanding diagonal but not a rule. So, for the sake of following the rules and guidelines in the best spirit possible, a couple of us also suggested the contracting variety of diagonal, as below, on the ES 4-hour chart.

In this case - as the Fibonacci ruler on the left shows - wave (iii) would be less in price that wave (i). It is also less in time which follows the guideline for contracting diagonal. 

Now the question is whether there will be another whippy zigzag wave (iv) that is less in price than wave (ii). That means wave (iv) has 5,249 as a practical maximum before invalidating. Again, wave (iv) must be in the zigzag class of waves and may not be a flat for a diagonal to form properly. If wave (iv) remains valid in price, then the next question would be does it follow the contracting diagonal guideline for being shorter in time, too? If it does, then it is on to wave (v) which must be shorter in price than wave (iii) and might be shorter in time than wave (iii), too.

Again, the personality of the diagonal is that the bull forces are not convinced that the prior rally is done yet, and they are committing large amounts of capital but with the effect of not making higher highs. The swing-line trend is lower highs and lower lows, and the bias is lower as long as price remains below the 18-day SMA.

Again, the five minuet down waves (i) to (v) likely compose the minute ⓘ wave of the Minor A wave of the decline within Intermediate wave (4), if the waves finish properly.

Have an excellent rest of the weekend.

TraderJoe