Local Top Taking Shape, but Deeper Decline Still Needs Confirmation
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Today, we saw the market grind higher into the FOMC announcement and press conference, only to hit its head on both the 100% extension of the initial move up off of the 7646 low and the 88.6% retracement of the move down off of the 7812 high. That high was made on what counts best as three waves, as well as negative divergence on the 30-minute MACD, with the 60-minute MACD trying to roll over. These are giving us early indications that we should see at least a pullback, but the bigger question as to whether that pullback is the start of the larger wave 3 down in yellow or simply part of a larger wave b per the blue count remains up in the air. To answer that question, we will need to watch the structure of the next move down, as well as the key support levels below.
As shown on the ES chart, the market hit and reversed right at the 7794 level, just a few ticks over the 100% extension of the initial move up off of the lows. I would want to see a break under the 7749 level, followed by a break of the 7735 level, to give us initial confirmation that we have put in at least a local top. From there, we will need to keep a close eye on the structure of the move down to help us determine if that pullback is part of the blue wave (b), still setting up a push higher as part of the larger wave b, or if we have indeed begun the wave 3 of c down per the yellow count.
For now, we simply do not have an answer to that question and will need to rely on the structure of any pullback before we have more confidence in which path is indeed playing out. If the market does not pull back under the levels noted above but rather makes a direct push higher, then it would open the door for a more imminent top in the blue wave b, but we still would need to see a full five-wave move to the downside to give us initial confirmation that we have indeed topped in that blue wave b.
For now, and until we see what the downside structure looks like, we will need to remain patient and wait for the market to tip its hand as it continues to grind out its sloppy pattern in this region.
