Nasdaq Composite Elliott Wave Analysis – 8th February, 2016

Last Nasdaq analysis expected some upwards movement to about 4,604, then more downwards movement.

So far that is somewhat close to what has happened. Price moved up to reach 4,636.93 and has turned down from there.

Summary: Nasdaq should continue lower. The target for the preferred bear wave count is 4,205 for a short term interruption to the trend, and at 3,972 for the mid term. Look out for surprises to the downside. Momentum should increase.

New updates to this analysis are in bold.

BULL WAVE COUNT

MONTHLY CHART

Nasdaq Composite monthly 2015
Click chart to enlarge.

Grand Super Cycle wave II is seen here as over in just 31 months. This is possible, but it is more likely it would last longer than this.

This wave count sees Nasdaq in a Grand Super Cycle wave III upwards.

There is no Fibonacci ratio between cycle waves I and III.

Super Cycle wave (I) is an incomplete impulse. Within Super Cycle wave (I), cycle wave IV is underway.

Cycle wave II was a very deep 0.91 zigzag lasting 17 months. Cycle wave IV should exhibit alternation, so is most likely to be a flat, combination or triangle. These are more time consuming structures than zigzags, so cycle wave IV should last at least 18 months and may last a total Fibonacci 21 or more likely 34 months. So far it is in just its seventh month. The degree of labelling within it at the weekly and daily chart level may need to be moved down one degree.

Cycle wave IV may not move into cycle wave I price territory below 2,861.51.

WEEKLY CHART

Nasdaq Composite weekly 2015
Click chart to enlarge.

Cycle wave IV may end about either the 0.236 or 0.382 Fibonacci ratios of cycle wave III at 3,748 or 3,042.

The bull market trend line is drawn from the end of cycle wave II in March 2009, to the end of minuette wave (ii) in November 2012. This trend line has been breached by a close of more than 3% of market value indicating a market change from bull to bear.

Cycle wave IV is most likely to be a flat, combination or triangle to exhibit structural alternation with the zigzag of cycle wave II. So far the first wave down may be a zigzag for primary wave A. This may also be a zigzag for primary wave W of a combination.

Primary wave B is over 90% the length of primary wave A. This may be a regular flat correction.

Regular flats fit well within trend channels. Their C waves normally are about even in length with their A waves. At 4,246 primary wave C would reach equality in length with primary wave A. Primary wave C may find support at the lower edge of the channel.

When a possible regular flat is complete, depending on the complete duration of the structure, then the degree of labelling within cycle wave IV may be moved down one degree. This flat correction may be only primary wave A of a larger flat, or a triangle, or primary wave W of a double flat or double combination. A judgement based upon the overall look at the monthly chart level would be made at that stage. For now I will leave the labelling as it is.

DAILY CHART

Nasdaq Composite daily 2015
Click chart to enlarge.

Cycle wave IV would most likely be a flat correction, or at least the first structure within it would most likely be a flat.

Primary wave C must complete as a five wave structure. Intermediate wave (4) now looks to be complete. It lasted a Fibonacci 8 days.

Within intermediate wave (5), no second wave correction may move beyond its start above 4,636.93.

BEAR WAVE COUNT

MONTHLY CHART

Nasdaq Composite monthly 2015
Click chart to enlarge.

The bear wave count just moves everything from the all time high at 5,132.52 all down one degree. Grand Super Cycle wave II may be an incomplete flat, combination or double flat.

A new low below 2,861.51 would invalidate the bull wave count and confirm a huge market crash.

All subdivisions are seen in exactly the same way, only the degree of labelling is different.

If Grand Super Cycle wave II is a combination, then super cycle wave (y) would be a zigzag or triangle.

If Grand Super Cycle wave II is a double flat, then super cycle wave (y) would be a flat correction ending about the same level as super cycle wave (w) at 1,160.

If Grand Super Cycle wave II is a regular flat, then super cycle wave (c) would be a five wave structure to end below super cycle wave (a) at 1,160 to avoid a truncation.

WEEKLY CHART

Nasdaq Composite weekly 2015
Click chart to enlarge.

The labelling of this upwards impulse is exactly the same as the bull wave count at the weekly chart level because 1-2-3 of an impulse subdivides 5-3-5, exactly the same as a zigzag. Here the bull market from March 2009 is seen as a zigzag for a super cycle wave (b). Super cycle wave (b) was a 101% length of super cycle wave (a).

Downwards movement from the all time high may be a first wave for intermediate wave (1), a deep second wave correction for intermediate wave (2), and now an incomplete third wave for intermediate wave (3).

Intermediate wave (1) may have ended with a truncation. This is possible after the prior move of minor wave 3 moved “too far too fast”.

With intermediate wave (1) seen as over with a truncation, the structure of intermediate wave (2) now fits as a zigzag. It looks like a three.

Intermediate wave (3) must move far enough below the price extreme of intermediate wave (1) to allow for room for the following correction of intermediate wave (4) to unfold and not move back into intermediate wave (1) price territory.

DAILY CHART

Nasdaq Composite daily 2015
Click chart to enlarge.

Downwards movement for both bull and bear wave counts is seen in the same way as a five wave impulse. C waves and third waves will both subdivide as impulses. Third waves may only subdivide as impulses.

At 3,972 intermediate wave (3) would reach 1.618 the length of intermediate wave (1). This target expects that minor wave 5 will be extended.

Minor wave 4 should now be complete. Within minor wave 5 minute, wave ii shows up on the daily chart, and this indicates that minor wave 5 is unfolding as an extended impulse.

At 4,205 minute wave iii would reach 1.618 the length of minute wave i.

Within minor wave 5, minute wave ii may not move beyond the start of minute wave i above 4,545.52.

TECHNICAL ANALYSIS

MONTHLY CHART

Nasdaq Composite daily 2015
Click chart to enlarge. Chart courtesy of StockCharts.com.

A more conservatively drawn trend line from the end of March 2009 is drawn here (blue line). It was reasonably shallow, repeatedly tested, and is highly technically significant. It has been breached and provided resistance.

Since May 2010, overall, as price rose to all time highs volume declined. The bull market was not well supported by volume and is suspicious.

There was slight negative technical divergence with price and MACD at the all time high.

On Balance Volume has breached a trend line held since May 2012, (green line) which is bearish. OBV turned up and tested the green line which held. The strength of that line is reinforced. This is further bearish indication.

There is negative divergence between price and RSI going back to December 2013, as price made all time highs. This is a strong bearish indicator. This was also seen up to March 2000, and was followed by a 78% drop in market value to the low of 1,108 in October 2012. It does not mean that the market must make a similar fall at this time, but it is a strong bearish indicator.

DAILY CHART

Nasdaq Composite daily 2015
Click chart to enlarge. Chart courtesy of StockCharts.com.

Apart from strong volume for the upwards day of 29th January the volume profile continues to be bearish.

Last week as price fell volume increased and as price moved higher volume declined. Friday’s strong downwards movement in price was supported by an increase in volume.

ADX indicates there is a clear trend and it is down. At the end of the week, ATR may be beginning to agree. It is starting to increase.

RSI is not yet oversold. There is room for price to fall.

On Balance Volume looks like it may be breaking below another trend line, a further bearish indication. The next support line I can find so far for OBV is some distance away (green line).

Stochastics is neutral, so it does not indicate an end to this downwards movement. It can remain extreme for some time during a trend, I will look for divergence between price and Stochastics to indicate a correction.

S&P 500 Elliott Wave Technical Analysis – 2nd February, 2016

A breach of the channel on the hourly Elliott wave chart provides some confidence the bounce is over.

Summary: There is earliest confirmation of a trend change today. The probability that the bounce is over has increased. Further confidence may be had with a new low below 1,872.7, and full and final confidence with a new low below 1,812.29 on a downwards day with an increase in volume. At this stage, the downwards trend has likely resumed and the short term target is at 1,511. If this target is wrong, it may not be low enough. Look out for surprises to the downside; this could be the middle of a big strong third wave approaching.

To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.

To see detail of the bull market from 2009 to the all time high on weekly charts, click here.

Last published monthly charts can be seen here.

If I was asked to pick a winner (which I am reluctant to do) I would say the bear wave count has a higher probability. It is better supported by regular technical analysis at the monthly chart level, it fits the Grand Supercycle analysis better, and it has overall the “right look”.

New updates to this analysis are in bold.

BULL ELLIOTT WAVE COUNT

DAILY CHART – COMBINATION OR FLAT

S&P 500 daily 2015
Click chart to enlarge.

This wave count is bullish at Super Cycle degree.

Cycle wave IV may not move into cycle wave I price territory below 1,370.58. If this bull wave count is invalidated by downwards movement, then the bear wave count shall be fully confirmed.

Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV should exhibit alternation in structure and maybe also alternation in depth. Cycle wave IV may be a flat, or combination.

Cycle wave IV may end within the price range of the fourth wave of one lesser degree. Because of the good Fibonacci ratio for primary wave 3 and the perfect subdivisions within it, I am confident that primary wave 4 has its range from 1,730 to 1,647.

Primary wave C should subdivide as a five and primary wave Y should begin with a zigzag downwards. This downwards movement is either intermediate waves (1)-(2)-(3) of an impulse for primary wave C or minor waves A-B-C of a zigzag for intermediate wave (A). Both these ideas need to see a five down complete towards the target, so at this stage there is no divergence in expectations regarding targets or direction. When and if these two ideas diverge, I will separate them out into two separate charts. For now I will keep the number of charts to a minimum.

Primary wave A or W lasted three months. Primary wave C or Y may be expected to also last about three months. It is now in its second month at this stage and may not be able to complete in just one more. It may be longer in duration, perhaps a Fibonacci five months. That would still give a combination the right look at higher time frames.

Within the new downwards wave of primary wave C or Y, a first and second wave, or A and B wave, is now complete. Intermediate wave (2) or minor wave B lasted a Fibonacci 13 days exactly. At 1,693 intermediate wave (3) would reach 4.236 the length of intermediate wave (1).

This daily chart and the hourly chart below both label minor wave 3 as complete. It is also possible that the degree of labelling within minor wave 3 could be moved down one degree, because only minute wave i within it may be complete. The invalidation point reflects this. No second wave correction may move beyond its start above 2,081.56 within minor wave 3. If this bounce is minor wave 4, then it may not move into minor wave 1 price territory above 1,993.26.

Price has come up to find resistance at the upper cyan trend line. This line goes back to 20th July, 2015, (its first anchor) and is reasonably shallow, has been repeatedly tested, and has reasonable technical significance. It should be expected to offer reasonable resistance and this may end the upwards correction here.

HOURLY CHART

S&P 500 hourly 2015
Click chart to enlarge.

At this stage, the corrective structure which has the best fit is a double zigzag. This movement now has a clear three wave look to it on the daily chart.

If this is a fourth wave correction, then the least likely structure for it would be a zigzag or zigzag multiple. That would not provide adequate alternation with the second wave zigzag.

However, alternation is a guideline, not a rule, and it is not always seen.

The probability that a fourth wave is unfolding has reduced. The probability that this bounce is a second wave has increased.

Because both bull and bear wave counts see this structure in the same way on the hourly chart, further comment will be with the bear wave count.

BEAR ELLIOTT WAVE COUNT

DAILY CHART

S&P 500 daily bear 2015
Click chart to enlarge.

This bear wave count fits better than the bull with the even larger picture, super cycle analysis found here. It is also well supported by regular technical analysis at the monthly chart level.

Importantly, there is no lower invalidation point for this wave count. That means there is no lower limit to this bear market.

Downwards movement so far within January still looks like a third wave. This third wave for intermediate wave (3) still has a long way to go. It has to move far enough below the price territory of intermediate wave (1), which has its extreme at 1,867.01, to allow room for a following fourth wave correction to unfold which must remain below intermediate wave (1) price territory.

Intermediate wave (2) was a very deep 0.93 zigzag. Because intermediate wave (2) was so deep the best Fibonacci ratio to apply for the target of intermediate wave (3) is 2.618 which gives a target at 1,428. If intermediate wave (3) ends below this target, then the degree of labelling within this downwards movement may be moved up one degree; this may be primary wave 3 now unfolding and in its early stages.

The correction for minuette wave (ii) may be over totalling a Fibonacci eight sessions and finding resistance at the upper cyan trend line. A small channel may now be drawn about this correction. This channel is now breached at the hourly chart level. Depending upon risk appetite, members may like to wait to see a clear breach at the daily chart level before having confidence that this correction is over. Price is finding support on the way down at the lower cyan trend line. This may be preventing a strong increase in downwards momentum. Momentum may increase when price breaks below this line.

Intermediate wave (2) lasted 25 sessions (no Fibonacci number), minor wave 2 lasted 11 sessions (no Fibonacci number), minute wave ii lasted 10 sessions (no Fibonacci number) and now minuette wave (ii) may have lasted a Fibonacci 8 sessions. Each successive second wave correction of a lower degree has a shorter duration which gives the wave count the right look, so far.

If minuette wave (ii) continues any higher, it may not move beyond the start of minuette wave (i) above 2,081.56. When the channel about minuette wave (ii) is breached by a full daily candlestick below it, then the invalidation point may be moved lower at the daily chart also.

The degree of labelling within minute wave iii may also be moved up one degree. This correction may be minute wave iv. I will wait to see how momentum behaves for the next wave down to make a final decision on which degree of labelling is correct. For now I will leave the labelling as the most likely for a second wave due to the duration and the structure of a double zigzag.

If the next wave down shows a strong increase in momentum, then it would be the middle of a big third wave.

If the next wave down shows weaker momentum than minuette wave (i), then it would be a fifth wave to end minor wave 3.

HOURLY CHART

S&P 500 daily bear 2015
Click chart to enlarge.

The structure of this correction fits neatly as a double zigzag.

The simplest method to confirm a trend change is a trend channel or trend line.

The channel about minuette wave (ii) is today breached at the hourly chart level, so the invalidation point is moved lower at the hourly chart level. This is earliest confirmation of a trend change. No second wave correction may move beyond its start above 1,947.2 within minuette wave (iii).

A new low below 1,872.7 could not be a B wave nor second wave correction within subminuette wave y, so at that stage minuette wave y would have to be over. This would provide further confidence in a trend change.

At 1,511 minuette wave (iii) would reach 1.618 the length of minuette wave (i). For this bear wave count, if this target is wrong, it may not be low enough; expect surprises to be to the downside.

A new low below the start of minuette wave (ii) at 1,812.29 on a downwards day with an increase in volume would provide classic technical confirmation of a breakout.

TECHNICAL ANALYSIS

DAILY CHART

S&P 500 daily 2015
Click chart to enlarge. Chart courtesy of StockCharts.com.

A reasonable downwards day with an increase in volume supports the fall in price. Concerns over the high volume for the strong upwards day of 29th January are further alleviated.

ADX and ATR still indicate that the market is not trending. Both these indicators are necessarily lagging as they are based upon 14 day averages. If the market remains range bound, as these two indicators suggest, then more downwards movement would be expected to continue until price finds support and Stochastics reaches oversold at the same time. The next support line for price is about 1,878.

On Balance Volume has found resistance at the green trend line and turned down from there. This is a bearish indication. If OBV breaks below the light blue or pink lines that would be a further bearish indication.

The bounce has resolved RSI being oversold. There is again room for price to fall.

DOW THEORY

For the bear wave count I am waiting for Dow Theory to confirm a market crash. I am choosing to use the S&P500, Dow Industrials, Dow Transportation, Nasdaq and I’ll add the Russell 2000 index. Major swing lows are noted below. So far the Industrials, Transportation and Russell 2000 have made new major swing lows. None of these indices have made new highs.

I am aware that this approach is extremely conservative. Original Dow Theory has already confirmed a major trend change as both the industrials and transportation indexes have made new major lows.

At this stage, if the S&P500 and Nasdaq also make new major swing lows, then Dow Theory would confirm a major new bear market. At that stage, my only wave count would be the bear wave count.

The lows below are from October 2014. These lows were the last secondary correction within the primary trend which was the bull market from 2009.

These lows must be breached by a daily close below each point. So far the S&P has made a new low below 1,821.61, but it has not closed below 1,821.61.

S&P500: 1,821.61
Nasdaq: 4,117.84
DJT: 7,700.49 – this price point was breached.
DJIA: 15,855.12 – this price point was breached.
Russell 2000: 1,343.51 – this price point was breached.

This analysis is published @ 09:37 p.m. EST.

[Note: Analysis is public today for promotional purposes. Member comments and discussion will remain private.]

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