Is it an Ending Diagonal? Positively Maybe.

The cash S&P500 index surged forward yesterday on an uptrending price bar. The low on 11/26 at 1406.10 is now marked as a CIT (Change-In-Trend) by the green ellipse and as a price fractal low (blue diamond). Both volume and price movement increased on yesterday’s move, a bullish sign. Recall that we just had bullish divergence between price and the RSI.

Yesterday I presented a speculative wave count that showed a corrective a’-b’-c’ pattern developing from the October 11th high at 1576.09. In any such “a-b-c” correction the “c” wave must be a five. As depicted the five waves down from the 10/31 high may have unfolded as an “Ending Diagonal” (also known as a “Terminal Impulse” or “Ending Diagonal Triangle”) pattern. Most times the market will react violently after the completion of such a pattern. As Frost and Prechter state in the classic “Elliott Wave Principle”, “… diagonal triangles all imply the same thing: dramatic reversal ahead.” (pg. 40). If this count has merit the low should be in and the 1490 resistance area will be broken.

And so I think the wave count has merit but is it the correct count? I don’t know. The a’-b’-c’ could still be a 1’-2’-3’ and we could be in 4’ now. If so we will not break 1490 and then we will see another new low in 5’. I guess time will tell.

Sadly the astute reader will have noted that gave up on trading the RSI signals right before this big move higher. Following previous moves I would be long the SPY now. Instead I skipped the trade because the weekly chart was negative. Only time will tell if I have “missed the boat.” But that is what the journal is for – to document lessons learned so that they stare me in the face and I can’t run and hide from them.