Markets often have a way of consolidating at the 1/2 way mark of a swing in price action.  It is the very basis of a measured move setup (aka bull flag or bear flag).  The structure is an impulse followed by a shallow counter-trend movement (the flag or a-b-c retrace) before resuming the directional movement.  Here is one of rin’s charts outlining a downside target on the 45min timeframe.  Notice the unfilled gaps which are a confirmation of the trend direction.

As far as the Elliott wave count is concerned, we have not reached an intermediate wave 3 low.  The numbering which I presented in the previous post needs revision, and in this context, we use Fibonacci projections to determine some time of price level at which the markets may produce the next consolidation sequence.  There is a nice confluence of measured move target and 162% extension of wave 1-2 around 650 in the S&P.  Another number which is often bantered around is 600 – the eventual wave 5 of (5) downside target comes into play and would create a perfect Elliott wave structure where wave 1 price impuse is equal to wave 5.

3:30pm update – A third measured move is completed in this week – futures are testing the 666 devil pivot.

4:05 pm update – Amazing how numbers like 666 can ignite a fire.  Obviously the media headlines are a bit behind, since the move happened in the last 30 minutes of market action.

1:00pm – A small measured move pullback meets target measurements following a lunch consolidation.  A bull flag setup for the afternoon session.

2:40pm update – bull flag targets = retest of previous spike highs.  This is the third push higher, so beware of higher prices / lower momentum divergence.

3:00pm – A full measured move target tag.

This lift in equities, as mentioned yesterday, is on the reversal stick of the US dollar – as the dollar falls, equities lift.

4:20pm – markets settle down with the news crossing the tape that mark-to-market accounting will be reconsidered.

The hard sell-off into the close and overlapping wave structure suggests a move to retest the 700 level.  A wolfewave pattern on the 5min chart.

1:10pm – ES has tagged a parallel channel downside measurement.  Pattern target here.

Dow Jones weekly retest sequence – thanks to Buffy for the chart.

final update – note where the 1:10pm pattern completion sets a low-water mark and a wolfewave reversal takes effect.

11:15am – markets are playing channel games as we head into expiry.  Does past support turn into future resistance?

12:05pm – channel measurement target, measured move a-b-c completes around 782

1:25pm – another a-b-c measured move completes on momentum swing high

2:50pm – small wolfewave presents itself following measured move target and overlapping wave structure.

4:20pm – no reversal presents ifself on the wolfewave setup and insead falls to day lows to close AM gap up.

11:15am – The first pattern that presents itself is a small momentum divergence, a measured move setup.

1:45pm update – A second measured move pattern completes, pocket trade to 10am spike lows

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2:15pm – wolfewave pattern presents itself on 5min chart, overlapping wave structure

3:00pm – wolfewave target tag

4:00pm – glide to a finish

10:00pm – possible Elliott wave 5 termination sequence on hourly ES futures charts

12:00pm – retest of AM spike low

Expecting some type of a-b-c (counter-trend) structure to form here.  Reaction to the 5min/20ema is key for action into the close.

3:10pm – measured move targets

4;00pm – target tagged

6:40am – Futures have a mixed feeling in the morning, however, the dollar has definitely confirmed overhead resistance in the pocket around DX 87.  This slide in the greenback should ensure sideways trading action, most likely in a narrow range.  A good day to look for an ‘inside, nr7′ signal.

2:15pm – Measured move setup.

4:00 pm update. measured move target is tagged around 3:00pm.  choppy action all day.  Dow, S&P, and Naz all register an ‘nr’ day = narrowest range in 7 trading sessions and sets up for a range expanstion tomorrow.

11:00pm update – Range expansion in overnight globex trading suggests a downside impulse to test the 850 level.  Most likely this is yesterday’s multi-day gartley pattern setup in motion.  Another downside target to consider is 845, trading into the previous price pocket.

11:15am – Measured move target is achieved based on bull flag setup.

1:45pm update – early setup for measured move target by Buffy is called at 10am. Target is tagged at the beginning of PM session.

2:00pm profit taking level – pattern traders will also recognize the gartley on larger timescale and definitely ring the cash register here.

3:00pm – just a quick note to remark on the correlation of a short USD (US dollar) position to equity markets.  Showing the EUR/USD cross.

GDP numbers are released and markets immediately goes into reactionary mode. At 2:30 pm a wolfewave pattern sets up on the 5- and 15-minute time frames. It also represents a measured move target level following a noon swing high.  Thanks to Huddy in b-line channel for the chart.

Caution Ahead

The VIX, or volatility index has produced a falling wedge pattern on the daily charts and on Wednesday tagged the 78.6% retracement level.  It also produced a solid bounce off the 200 day moving average around 36.5 and 2007 spike highs of 37.5 (past resistance becomes future support) as well as a pixel-perfect trend line test combined with a positive divergence (lower prices, higher momentum).  This indicator moves inverse to the stock market, and therefore is giving a bearish signal for equities.

The overnite futures contract falls well below target levels, and achieves a rising channel breakdown target right on the open. What is perhaps more disturbing is that the dollar has confirmed the head & shoulders setup and is now testing the neckline – a solid 5% drop in buying power in less than four days.

10:30 am update – a solid elliott 5-wave advance is registered on the 1min chart. The markets are rallying on the exceptionally weak dollar to keep all things equal. At this juncture, however, a short can be initiated with a 2 pt stop.

2:30 pm update – An impulse down wave shows. The measured move sequence will target 889 levels.

3:20 update – An opening range reversal pattern is now in play. The last move down showed very little / no overlapping structure and must be considered an impulse wave (elliott wave 3 in action).