Is the S&P500 forming and Ending Diagonal Triangle 5th wave?

Recently the S&P500 has been stuck in 3rd gear: in between the NASDAQ which lost its footing June 9, and the DOW which has steadily marched higher. This “stop-n-go” type behaviour (breakout attempts being sold and shallow dips being bought) can be indicative of an Ending Diagonal Triangle (EDT) 5th wave, which are notorious for breaking down swiftly once completed. It’s best counted as a set of a,b,c,d,e waves that best resemble a 3,3,3,3,3 structure.

The daily chart of the S&P500 below shows this count off the SPX2329 low made on April 13 (seems like ages ago doesn’t it!?). Although we can count it also still as a standard 1,2,3,4,5 impulse the triangle formation is rathe clear and the price action in June leaves a lot to be desired.

spx daily TI

Since we don’t want to front run the market, but let it guide us (in our trades), we are waiting for confirmation of a top by a break below SPX2416, until then the EDT and standard Impulse count prevail and point higher towards the ideal target zone of SPX2475-2500, we’ve had for quite some time.

However, clearly now is not the time to be complacent and bet large on continued upside, especially since EDTs are retraced often fully to their origin: in this case low 2300s on the S&P500. That’s max 60p upside potential vs 140p downside risk. Not the risk reward longer term traders would like to see. Of course buy, selling and/or holding is everybody’s personal choice, but I prefer to buy low and sell high and exit the market when things become increasingly unclear with increasing risk. The risk is exemplified by the Technical Indicators, which are all pointing down and/or on a sell: my proprietary A.I. buy/sell indicator is on a sell, so is the MACD and the Money Flow Index shows that “Elvis left the building” early June: similar prices, while much less money is flowing in the market. This can of course all change, but for now these are negatives.

Hence, a break of SPX2416 tells us the larger correction to low 2300s is underway and I then expect one more larger wave up up to complete this Bull by Spring 2018.

 

 

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