Could the Market Triangle? - A Long-Term Alternate

In prior posts (see LINK here) we have laid out the case for a potential expanding diagonal top, still in formation, or for a Primary Ⓑ wave top at the recent high. Those counts remain active, as we do our best to count locally. But the Principle of Equivalence can be a little more insidious in some situations, and this often requires that we pay close attention while suspending our judgement for just a bit. One thing is not this uncertain. In terms of absolute points (not necessarily percentage in some situations), this down wave is currently longer than all the prior ones since October of 2022. So, it does appear that we may well have had a true turn-of-degree by the definitions involved.

Still, when we back out and look at the two-weekly ES chart in close-only format, we see that we are still in a parallel since March 2020, as below.

ES Futures - 2 Weekly - Close Only

So, because we haven't overlapped anything downward yet, and because the wave (2), down, is a simple zigzag, The Fourth Wave Conundrum - that occurs of every degree of trend, and The Principle of Alternation say that we could get a very sideways triangle or flat - which does not overlap - to make a fourth wave, (4). Note that with 131 candles on this chart, the EWO, while declining, has not come back down to near the zero line, yet.

It is possible a fourth wave triangle could coincide with a FED rate-cutting cycle during a recession if one should occur. This may have the effect of getting the animal-spirits flowing again and keeping the market afloat.

Caution: there is virtually nothing that is guaranteed about this scenario. The expanding diagonal could still happen. And, if the triangle does happen, as above, there can still be a lot of down-side movement yet even from here. We are not yet down to 38 - 50% of wave (3).

We include this scenario for completeness, and because the up waves (1) & (3) are just messy enough in their counting to possibly allow it. Further, we have not seen a clear, massive, agreed-upon triangle on the weekly chart, though the daily triangle possibility at this high has been noted by several analysts, me included. So, this is just a scenario to keep in the back of your mind, even though the expanding diagonal and the Primary Ⓑ wave may agree more with the extreme market over-valuation and extreme, extreme long-term bullishness.

Have an excellent rest of the weekend.

TraderJoe