Patience, Patience

Before further analysis this weekend, I wanted to post this chart of my own construction showing current three-touch trend lines on the three-monthly log-scale chart of the S&P500 cash index.

SPX Cash Index - Three Month Bars - Log Scale Trend Lines

And while I encourage you to review the monthly RSI below the chart, and its current divergences from price, it would be helpful to post a couple of cautionary notes. Let me lead out by saying that the wedge itself outlines a certain level of risk that one might want to pay attention to. The upper wedge line would have to have prices break up through it and cause the upper wedge line to go parallel to reduce the risk. This is plausible but certainly hasn't happened yet. And the lower wedge line could be in play.

But if the ES futures have made '5-down' and overlapped certain waves, cash has not overlapped the most important down wave yet - the Aug/Sep 2024 high. The roll-over ES futures contract has not yet, either. But the NASDAQ (NQ) futures have overlapped that same peak, and that must be paid attention to.

Further, the Dow Jones Industrial has not yet made a lower local low over their January 2025 low. And that is curious. It may be that there is rotation out of tech and into stocks perceived to be more stable. So, we said earlier that stocks might go over the high again with a reduced probability. That is still the case and may depend more on the index being tracked.

Clearly, the three-month wedge might indicate a fourth and fifth wave inside the wedge to complete the upward count. But it doesn't have to. We'll try to indicate why later in the weekend.

But for now, the task at hand is to understand if the downward diagonal is ending or leading as the SPX 2-hr chart below shows. We have provided some minute degree wave labels for the wave as ⓐ, ⓘ or ⓒ at the wave (v) low. These follow from The Principle of Equivalence as related to market probabilities.

SPX Cash Index - 2 Hr - Diagonal

The Principle of Equivalence tells us to mind our p's & q's unless & until a retrace occurs that does not go over the high. And the patience comes from the fact that it took fully three-weeks to make the down wave. It does not have to, but it could take three weeks or more to make a corrective wave upward. Any upward impulse might take less time.

This is the part of the wave principle some people do not like. But if one wants to see a first wave down, then one simply must accept the necessity of allowing the market to make a decent second wave up. I hope to have more insights in further posts before Monday.

Have an excellent rest of the weekend,

TraderJoe