The Downside Pattern Is Now Full But Still No Confirmation Of A Bottom Just Yet

Yesterday I discussed out the new low was providing a new opportunity in that the previous three-wave move up off of the low had been reset and would potentially give us another opportunity to see a five-wave move up off of the lows. We did however still have a bit of unfinished business to the downside per that update as on the smaller timeframe charts we did not have what I was viewing as a complete pattern into the lows. The price action yesterday and today has however given us what I can now view as a completed pattern into the lows which is always the first step in identifying a bottom of a larger degree corrective wave pattern. The next step would be to see a full five-wave move up off of the lows followed by a move through the smaller degree resistance zone. So while we do have step one now in place there is still some work to be done before we have an initial signal that we may have indeed struck a bottom. 

As I noted yesterday on the 60min SPX chart I am counting the June high as the wave iv of larger wave C of (4). That made the new low yesterday as the wave v of C of (4). As of yesterday, however, the micro wave structure within that wave v of C of (4) was not quite completed as the wave (c) within that wave v still looked to only have three waves down into yesterday's low and it seem to be missing a wave 4 and 5. Overnight and today however we do appear to have completed that wave 4 and 5 into the current lows as I am showing on the ES chart thus giving us a potentially full pattern to the downside. Now as I noted above this is only step one in identifying a bottom and we still do need further confirmation that a bottom is indeed in place in the form of seeing a full five up off of the lows and a break over the smaller degree resistance overhead as shown on the ES chart. Currently, that resistance comes in at the 3852-3925 zone and if we can push through that region we will have from a price perspective the initial signal of a bottom. If however we do move higher and are unable to push through there then we still have to be on the lookout for another lower low with that retrace into that zone being part of the alternate wave 4 as shown in purple. 

I also want to reiterate that due to the structure of the entire move down off of the March highs, I am counting this C wave as a larger non-overlapping Ending Diagonal.  While this is making it a little more difficult to define the downside targets with as much precision as if we were dealing with an impulsive wave pattern, it would suggest that once this wave C is completed the reveal back higher should be quite sharp and swift as this is the characteristic of the reveals of Ending Diagonal wave patterns. So once we do have some confirmation of a bottom this reversal pattern could lead to the "beach ball" effect that Avi had mentioned previously with the next leg up starting quite sharply. We do however still need to be cautious here again we are still only in step one of the bottoming process.

ES 61412 15m
ES 61412 15m
SPX 61411 60m
SPX 61411 60m
Michael Golembesky is a senior analyst at ElliottWaveTrader covering US Indices, the US Dollar, and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trading service.