Okay, so that’s a stretch of a title. I’m trying to echo the famous Barbara Mandell song. The original song was of course titled I Was Ending Diagonal When Ending Diagonal Wasn’t Cool — my change to “we” definitely stretches it.
Anyway, that’s not the point. I’m going to have to consult my notes now to figure out exactly what the point was… oh yes, the point was that we started watching this potential back on March 27, based on my read of one extra little wave — and now everyone’s looking for it. The market’s sure doing it’s best to “make it so,” and the description on the chart of a frustrating whipsaw market describes the last week perfectly. My only concern is that too many people have caught onto it now, so the market may need to throw another curve ball.
Yesterday’s SPX preferred short-term count was a whiff. Based on the most probable read of the pattern, it clearly looked like it needed another slightly higher high — but it never came. This is one reason that chasing the last couple bucks of a move can be dangerous. On the other hand, yesterday’s NDX expectation was a hit, so that’s some consolation.
Yesterday, I warned that trade beneath 1409.61 would be dangerous for the bullish outlook, and after studying the charts tonight, I hope that readers heeded that warning.
Yesterday’s overlap, while not perfectly conclusive, pretty well locked-in the three-wave form of the most recent rally leg. So now the question is if there’s another leg up left to complete the diagonal, or if we need to shift all the labels over to the left, which would make the recent high “it.” Either is possible, and there’s little in the way of crystal-clarity.
To try and uncover some clues, I spent literally two hours breaking down about a day’s worth of movement on the SPX one-minute chart, and it does appear that there are new lows coming either way. The decline counts best as an impulse, albeit an ugly one. So either the market formed a first wave down and ended the day in a second wave (which is likely complete at a 2.618 extension of wave-a in an expanded flat (see chart)), or it’s an a-wave down, with the market ending the day in a b-wave. Either 3 or C down still to come.
Alternately, the market bottomed wave iv at yesterday’s low — but as I said, if two hours of short-term chart work mean anything, then that’s unlikely.
The larger structure would look slightly better with another wave up, so it’s possible that yesterday was waves a and b of wave iv of the diagonal — but I like the idea of the recent high being “it” because it would make a great curveball and send the market plunging while all those johnny-come-lately ending diagonal watchers kept waiting for a new high.
As discussed over the past couple days, the risk level for longs definitely remains elevated. There’s a couple key levels marked on the chart.
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