Up Count Paused, At Least Temporarily

We said we were counting upward until something prevented it. Today, the ES daily futures made an outside day down, as shown in the daily chart, below, and wound up at / below the 18-day SMA. So, "outside day" guidelines are in effect (if the high of the outside day down is exceeded in the next two daily session, then it constitutes a trap for the bears).

One interpretation of the up wave is that it is a five-wave "a" wave, up. The wave is shown below with the five-count in a wedge on the ES 2-hr time frame. The chart clearly shows the reason we paused the up counting today, with two levels of overlap (L#1, and L#2) that overlapped both of the first waves up.

IFF the five-wave sequence is counted correctly, then it could be a larger a/i wave up. The wave ended with a contracting diagonal that we showed on the 2-min chart. The start of the diagonal was then exceeded lower in less time than it took to form, validating the prior structure as a diagonal. So, this down wave could be a b/ii wave down. If so, an awful lot of different structures are possible. In the case of the b wave, even a triangle is possible. It's a situation rife to trip up both wave-counters and traders alike.

The only thing that can cause invalidation of an up count once the down wave is in progress is trading below the start of the wedge. And yes, marginal higher highs could be made if b/ii turns out to be an expanded flat.

So, patience, calm and flexibility are again called for as measurements are the key at this point.

Have an excellent start to the evening and the weekend,

TraderJoe