This weekly chart reviews the end of the stalling pattern, an almost totally ranging action where “bulls were not interested” in buying new highs anymore. It covered 314 S&P points to the north which is not bad considering the strength of gravity at this height.
Studying the internal details of the structure might be a bone of contention for many, but keeping your eye on the multiple marginal new highs, the sloppy structure, the three pushes up, and the channel-like trend with the converging trend lines were all revealing the terminal function of the pattern.
And, what is more, the breaking action following the end of the structure is the final tell when identifying Elliott’s ending diagonal. He expects a dramatic reversal which return prices below the starting point of the pattern, here prices returned to the October 2014 lows in a violent manner, as price declines much faster than it climbed on the way up. The diagonal needed 40 weeks to complete its structure, and so the decline should last 13 to 20 weeks. The decline looks definitely fast enough for that minimum achievement.
Looking at the hourly chart we can identify the Monday open as the low for wave three and expect further lows aiming beyond the October lows at a minimum, only with a decelerating slope. Yes, we experienced strong crashing momentum to the downside, but don’t rush the action too hard for now because the wave one-two nesting lasted 3 weeks before the break. Now that the market did the bungee jump the consolidation can eat up similar amount of time.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.