By this count we should now be in a 3rd of a 3rd of a 3rd. However, as mentioned in Wednesday's post, market internals were pretty weak in a situation where they should be quite strong, so the probability of this count being correct has diminished quite a bit.
Volume is an important market statistic, and volume was very weak the last three days of the week. It's hard to see how a major rally can be sustained at this point given the apparent lack of interest by potential buyers that is reflected in the soft volume statistics. Other measures, such as the A/D line, are also showing weakness rather than strength. Finally, and maybe most important, prices worked sideways with downside bursts Thursday and Friday. All in all this week's action looks very much like a top is forming.
A more likely count from the July 5 lows is a diagonal 5 which either completed at Thursday's highs or is close to being completed:
The question is whether this diagonal 5 is a C wave ending an intermediate term correction or a wave 1 of an intermediate term rally. The EW count for the correction scenario looks like this (ES daily chart):
The intermediate term rally scenario looks like this:
The diagonal 5 is my preferred count at this point, but whether we are seeing the end of a correction or the end of the first leg of a rally sequence is difficult to say just yet.
