Candles Speak – Beware of Sharp Decline

Today’s RTH closure printed the decisive combos for all major Indices. Let me interpret them in details:
1. DJI and SPX cash completed the Bearish Engulfing combos that stopped short from totally embracing the previous day candles. Note that the price is at the level of PSAR and any movement further down would flip PSAR to the dark side.
2. SmallCap cash printed a very strong Dark Cloud and it would take a lot for the bulls to overcome its shadow tomorrow.
3. NDX cash completed a Hammer that could be also viewed as a Harami to the last red candle. Most importantly, the candle closed below the mid point of the red candle. We will know tomorrow whether NQ was the last line of bull’s defense before the start of real downtrend.

Today’s advance reversed almost precisely at the level where wave 1 off the March low would be equal wave 5. I’ve been talking about these counts and the possible reversal point for a while. If the count is correct, I can see two possible options for completing this diagonal. First, the diagonal has already complete with a truncated wave 5. Second, the wave 5 can complete one more wave up.
Based on the candle structure and several technical indicators, I favor the first option.

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