Possible Ending Diagonal in the Dow

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The chart above shows a 60 min chart of the Dow. It looks like an ending diagonal at this point, and the hourly technical indicators support that because they have strong divergences as seen in the MACD. I will probably be posting a new intermediate term trade soon, but I will wait for the hourly MACD to cross down or a break of 10425 on the Dow whichever comes first. Of course neither may come.

Something felt weird and looked weird on the charts today. Such a large gap up and a rush to new highs in a very overbought market seems to me like a capitulation move. There was a bearish engulfing pattern Thursday. Then the gap up today opened back nearly up at Thursday's high. For a safe trade, wait until Thursday's lows are taken out, and then short with a stop above the recent (today's) high.

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This is the Dow on a daily time frame. One key component of ending diagonal patterns is that the pattern tends to oscillate around the wave 2-4 or 0-B trendline in Elliott Wave parlance. In the chart above you can see it oscillate nicely around a possible such trendline.

So why bring this up? Well if it is an ending diagonal there will be an explosive move down, probably beginning tomorrow. The move should retrace back to around 10,200 on the Dow within a week or two. Ending Diagonals completely retrace the whole terminal pattern in about half the time, and often less, of the terminal rise. Also, these patterns complete larger patterns, so often the decline after such a pattern will retrace a good bit of a larger formation.

So if there is an explosive move back below the beginning of the terminal, it should just be the start of a larger correction.