A little more than a dozen points, that is how much the cash S&P500 index fluctuated so far this week. It is stuck right in the zone that we marked as “potential resistance” last week. The lengthy lull is a pause, when the entire market waits for a breakout to show direction at the top of the 10+ week long trading range. Breakouts from elongated trading ranges fail most of the time, and that is probably going to be the case this time around too.
But, first we have to focus on what is going to happen short term with the tiny price range of this week’s trading. Because the daily bars totally overlap each other; every intraday breakout attempt fails, and the whole structure hasn’t moved much against the previous bull leg. This definitely fits the characteristics of a triangle, or sideways consolidation-like move. Triangles are time corrections, and they are the most typical form that creates a terminal setup – when a breakout happens in the direction of the previous trend, here up, but soon reverses and gives way to a larger size bear leg.
Whenever we have a number of valid Elliott wave counts, that all seem to be about an equal probability, triangles can come handy. They appear only in wave four, B and X position. This rule narrows down the number of possible interpretations, and, therefore, triangles provide us with a significant point of orientation. Here the pattern must be representing a wave four bullish terminal setup.
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.