Six Days in August

First, the long-term count consideration: regular readers of this blog have seen me repeatedly write that I have not "ruled out" the expanding diagonal interpretation of a Cycle Vth wave. That remains true: I have not ruled it out. What is new with this week in August is that such a count can now be specifically "ruled in". That does not mean it is the operative count. That means, specifically, that there is now evidence for it, as in the ES monthly chart below.

ES Futures - Monthly - Log Longer Wave Up

Notice that wave (3) on the exponential form of the chart is now "log longer" than wave (1) as shown by the Fibonacci ruler at high. This is the evidence that makes the expanding diagonal count now possible, according to the 'rules'. That is why we labeled the prior high with an alternate red (3) in Tuesday's post. Further, we don't 'know' a top is in. So, the expanding diagonal is a valid interpretation on the log scale chart. And, the question is whether the up waves better count as 'fives' or as 'threes'. According to degree labeling we get better counts with 'threes', but we can't argue with the logic that there was, indeed, a significant higher high, after wave (1) - which possibly makes it, wave one, a 'five'. We just couldn't find anything like a long-in-time fourth wave in that wave to count it as such. Readers can also verify that within red wave (3) that red wave A and red wave C are now about the same length, a truly interesting detail but not proof-positive.

Now for the local count of the six days. As shown in the S&P500 cash index below, there appears to be an impulse lower that kicks off with the third wave breaking the 'base channel' lower from the Kennedy Channeling Technique (KCT).

S&P500 Cash Index - 30 min - KCT

We showed this count before in the comments for a prior post, caught the bottom to within the half-hour, and price has since rebounded to the upper parallel channel line. Notice that wave ④ came back to the underside of the KCT which is an expectation of the technique. And wave ④ now offers also a retrace to an approximate 62% Fib level. Wave ③ occurs on a low of MACD, and wave ⑤ occurs on a divergence with MACD. So, this appears to be a textbook impulse wave. And that means its high is very important. So far, we think there will at least be a lower low after it. But, the caveat is it is just not that long, overall, and it did not overlap anything important downward. Maybe a subsequent wave will. It just hasn't yet.

But, readers should question, why did this hourly down wave follow the KCT, but the monthly up wave does not? The market is fractal, right? Shouldn't an upward impulse follow the KCT, too? But, clearly the upward monthly wave does not. This might be a clue why the upward wave is not an impulse but a diagonal. Its grinding character might be another clue.

Two channels are shown on the monthly chart, above. The smaller blue channel are for those who might expect a grinding wave upward. The lower, larger, gray channel is for the possibility that maybe the expanding diagonal does play out. It might allow red wave (4) to overlap with red wave (1).

And what about the contracting diagonal, for the indexes? Nothing has ruled that 'out' yet. It is still a perfectly valid count. It might have some more grinding to do, but we'll have to watch it's length. As a reminder, here is that count.

ES Futures - Monthly - Contracting Diagonal

While this is the currently operative count, there are some factors that tend to rule it out. They are the higher highs in the MACD, and price exceeding 78% in the current up wave. Then, there is always the pesky fact that the S&P500  did not downwardly overlap in 2025 like the Dow and the NQ did.

But the only thing that rules it out definitively is a price high above 8,508.50 as the fifth wave in a contracting diagonal can not exceed the third wave.

So, we have learned a lot in this month of August, and we will learn more if the prior all-time high should be exceeded. That is the spot to watch.

Have an excellent rest of the weekend,

TraderJoe