Downwards movement continues to show increased momentum as expected.
Summary: A third wave down is underway and the structure remains incomplete. I expect a further increase in downwards momentum. The target remains at 1,850, with the short term target now at 1,934.
To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.
To see last analysis of weekly and monthly charts click 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
Cycle wave IV should exhibit alternation to cycle wave II.
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 end when price comes to touch the lower edge of the teal channel which is drawn about super cycle wave V using Elliott’s technique (see this channel on weekly and monthly charts).
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.
If a zigzag is complete at the last major low as labelled, then cycle wave IV may be unfolding as a flat, combination or triangle.
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.
Primary wave A or W lasted three months. Primary wave C or Y may be expected to also last about three months.
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 1,850 intermediate wave (3) or minor wave C would reach 2.618 the length of intermediate wave (1). At this stage, this will be the sole target for this third (or C) wave to end as it fits better with more short term targets calculated at the hourly chart level.
No second wave correction may move beyond the start of its first wave above 2,093.84 within minor wave 3.
DAILY CHART – TRIANGLE
Cycle wave IV may unfold as a shallow triangle. This would provide alternation with the 0.41 zigzag of cycle wave II.
Primary wave B may be a complete zigzag. Primary wave C downwards may be underway and within it intermediate waves (A) and (B) are complete.
The whole structure moves sideways in an ever decreasing range. The purpose of triangles is to take up time and move price sideways. A possible time expectation for this idea may be a total Fibonacci eight or thirteen months, with thirteen more likely. So far cycle wave IV has lasted six months.
The target for primary wave C to end is 1,947 where intermediate wave (C) would reach 1.618 the length of intermediate wave (A).
The hourly wave counts will again be the same today. Upwards movement for Tuesday’s session is too deep to be a fourth wave correction and may now only be a second wave.
Commentary on this hourly chart is given with the bear chart because that is my preferred wave count.
BULLISH ALTERNATE WAVE COUNT
I can again see the possibility that cycle wave IV is over and upwards movement may be the start of cycle wave V.
If cycle wave IV is over, as labelled, then there is inadequate alternation between cycle waves II and IV. Cycle wave II was a shallow 0.41 zigzag. Here, cycle wave IV is a more shallow 0.25 zigzag. Both are the same structure.
If cycle wave V has begun, then primary wave 1 within it may be an incomplete impulse. At 2,557 cycle wave V would reach equality in length with cycle wave I. If it also is the same in duration as cycle wave I, then it may last a year.
Intermediate wave (2) was a deep 0.94 expanded flat within primary wave 1. Intermediate wave (4) would be an incomplete zigzag which would also be relatively deep when it is complete. Minor wave C must complete as a five wave impulse downwards. Intermediate wave (4) may not move into intermediate wave (1) price territory below 1,948.04.
This wave count does not have any support from regular technical analysis. I do not have any confidence in it. It is presented as a “what if?” only, to consider all possibilities.
BEAR ELLIOTT WAVE COUNT
This bear wave count has a better fit at Grand Super Cycle degree and is better supported by regular technical analysis at the monthly chart level. But it is a huge call to make, so I present it second, after a more bullish wave count, and until all other options have been eliminated.
There are two ideas presented in this chart: a huge flat correction or a double flat / double combination. The huge flat is more likely. They more commonly have deep B waves than combinations have deep X waves (in my experience).
A huge flat correction would be labelled super cycle (a)-(b)-(c). It now expects a huge super cycle wave (c) to move substantially below the end of (a) at 666.79. C waves can behave like third waves. This idea expects a devastating bear market, and a huge crash to be much bigger than the last two bear markets on the monthly bear chart.
The second idea is a combination which would be labelled super cycle (w)-(x)-(y). The second structure for super cycle wave (y) would be a huge sideways repeat of super cycle wave (a) for a double flat, or a quicker zigzag for a double combination. It is also possible (least likely) that price could drift sideways in big movements for over 10 years for a huge triangle for super cycle wave (y).
The downwards movement labelled intermediate wave (1) looks like a five. If minor wave 2 is seen as a double zigzag with a triangle for wave X within it, then the subdivisions all fit nicely.
Ratios within intermediate wave (1) are: minor wave 3 is 7.13 points short of 6.854 the length of minor wave 1, and minor wave 5 is just 2.81 points longer than 0.618 the length of minor wave 3. These excellent Fibonacci ratios add some support to this wave count.
Intermediate wave (2) was a very deep 0.93 zigzag (it will also subdivide as a double 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.
Within intermediate wave (3), minor waves 1 and 2 are complete. The upwards movement for minor wave 2 does have a strong three wave look to it at the daily chart level. Minor wave 2 was another deep correction at 0.87 of minor wave 1. At 1,850 minor wave 3 would reach 2.618 the length of minor wave 1.
It is still possible (but still less likely) that primary wave 1 is unfolding as a leading diagonal. I will keep that chart up to date and will publish it if and when it begins to diverge from the idea presented here. For now I want to keep the number of charts published more manageable.
The upwards sloping cyan trend line is showing approximately where upwards movement may find resistance. Copy this trend line over to the hourly chart. The lower cyan trend line was where price found support on Monday and from there a bounce was initiated.
The invalidation point on the daily chart allows for the possibility that my labelling of the detail of this downwards movement is wrong. If downwards movement is seen as a complete five, then a following correction may not move above the start of a first wave at 2,093.84.
The acceleration channels on yesterday’s hourly bear chart did not work, so I will revert to the final line of resistance for this idea, a base channel drawn about minute waves i and ii.
The subdivisions, targets and invalidation points are again the same at the hourly chart level for both bullish and this bearish hourly wave count. Only the degree of labelling differs.
There may now be a series of four overlapping first and second waves at the hourly chart level. Added to the two more at the daily chart level gives six overlapping first and second waves. If this analysis is correct, then a very strong downwards movement should unfold very soon. Momentum should be explosive to the downside as the middle of a big third wave unfolds.
A very short term trend line is offering some support for Tuesday’s upwards movement. If when markets open tomorrow price breaks below this upwards sloping cyan trend line, then that shall provide some further confidence in this wave count.
The next interruption to the trend at the daily chart level may now come when micro wave 3 is over and micro wave 4 arrives. Because this upwards movement for micro wave 2 shows up on the daily chart as two green candlesticks, the following correction for micro wave 4 may also show up on the daily chart, so that this impulse has the “right look”.
At 1,934 micro wave 3 would reach 1.618 the length of micro wave 1. If this target is wrong for this bear wave count, then it may not be low enough. If price moves through the first target and keeps dropping, or if when price gets there the structure is incomplete, then the next Fibonacci ratio in the sequence may be used. At 1,859 micro wave 3 would reach 2.618 the length of micro wave 1.
If micro wave 2 moves any higher tomorrow, then the targets must also move correspondingly higher.
Micro wave 2 may not move beyond the start of micro wave 1 above 2,067.65.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Tuesday’s upwards day completes on slightly lower volume than Monday. The rise in price is not well supported by volume, so is suspicious. This offers some small support to the Elliott wave count at the hourly chart level.
It is very clearly a downwards day which has strongest volume during all movement since the August low. This offers some small support to the bearish Elliott wave count.
Price may be finding some resistance about the 9 day EMA. If price is trending, then a moving average should be useful to show where corrections end. Price remains below the 200 day moving average.
ADX is rising and above 20, a trend is indicated. The -DX line is above the +DX line so the trend is down. ATR agrees as it too is rising.
On Balance Volume broke above yesterday’s very short term gold line, so I have redrawn it. OBV has broken above the cyan line and may now find some resistance at the pink line.
RSI is neutral. If there is a downwards trend in place, then there is plenty of room for this market to fall.
Stochastics has returned from oversold.
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.
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.
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 about 08:34 p.m. EST.