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More upwards movement was expected. The most likely point for it to end was expected to be 1,895.

So far upwards movement has reached 1,895.77.

Summary: The trend is down. Upwards movement is now reasonably likely to be over. A new low below 1,810.10 would confirm this view. If movement continues any higher, then look for price to find strong resistance at the next cyan trend line. What is most likely is a big third wave may begin to show itself over the next few days with very strong downwards movement. Look out for surprises to the downside.

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 – 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. This first daily chart looks at a flat correction.

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.

Within the new downwards wave of primary wave C, intermediate waves (1), (2) and now (3) may be complete. Intermediate wave (4) may now find resistance at the upper cyan trend line. This would see it end within the price territory of the fourth wave of one lesser degree.

Intermediate wave (2) was a deep double zigzag. Intermediate wave (4) may exhibit alternation, so it may be shallow. It would most likely be a flat, combination or triangle.

The idea of a flat correction for cycle wave IV has the best look for the bull wave count. The structure would be nearly complete and at the monthly level cycle wave IV would be relatively in proportion to cycle wave II.

HOURLY CHART

S&P 500 hourly 2015
Click chart to enlarge.

So far the first five up looks to be incomplete. Whether this be a first wave or an A wave the following correction may not move below its start at 1,810.10.

DAILY CHART – COMBINATION

S&P 500 daily 2015
Click chart to enlarge.

This idea is technically possible, but it does not have the right look. It is presented only to consider all possibilities.

If cycle wave IV is a combination, then the first structure may have been a flat correction. But within primary wave W, the type of flat is a regular flat because intermediate wave (B) is less than 105% of intermediate wave (A). Regular flats are sideways movements. Their C waves normally are about even in length with their A waves and normally end only a little beyond the end of the A wave. This possible regular flat has a C wave which ends well beyond the end of the A wave, which gives this possible flat correction a very atypical look.

If cycle wave IV is a combination, then the first structure must be seen as a flat, despite its problems. The second structure of primary wave Y can only be seen as a zigzag because it does not meet the rules for a flat correction.

If cycle wave IV is a combination, then it would be complete. The combination would be a flat – X – zigzag.

Within the new bull market of cycle wave V, no second wave correction may move beyond the start of its first wave below 1,810.10.

I do not have any confidence in this wave count. It should only be used if price confirms it by invalidating all other options above 2,104.27.

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.

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), minuette wave (ii) 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.

Within minuette wave (iii), no second wave correction may move beyond the start of its first wave above 1,947.20.

This first idea for the bear count at the daily chart level expects to see a very strong increase in downwards momentum as the middle of a big third wave unfolds. This first idea (of three) has the highest probability because it expects that within intermediate wave (3) the middle of the third wave will be the longest extension, which is the most common pattern for the S&P.

Third waves are most often extended for the S&P. They often feel like they begin slowly as a series of first and second waves unfold. The middle accelerates and they often end with strong movement and a spike. There is a good example on this daily chart: minor wave 3 within intermediate wave (1) began slowly and then had strong acceleration at its middle and then ended strongly.

HOURLY CHART

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

Subminuette wave ii fits as a single zigzag which may have ended at the 0.618 Fibonacci ratio of subminuette wave i which is about 1,895.

Subminuette wave ii sits within a narrow steep channel. When this channel is breached by clear downwards movement, that shall be weak indication that the correction is over.

A new low below 1,810.10 would provide full price confirmation that the correction is over. At that stage, confidence may be had that a third wave down should be unfolding.

At 1,674 subminuette wave iii would reach 1.618 the length of subminuette wave i. If downwards movement keeps falling through this first target, or if when price gets there the structure is incomplete, then the second target may be used. At 1,537 subminuette wave iii would reach 2.618 the length of subminuette wave i.

At 1,511 minuette wave (iii) would reach 1.618 the length of minuette wave (i).

If subminuette wave ii is not over and price continues higher tomorrow, then it may find resistance at the next cyan line which is copied over here from the daily chart.

FIRST ALTERNATE DAILY CHART

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

It is time to separate out the different possibilities for the bear wave count for clarity.

Within minor wave 3, it is possible that minute wave i was extended and is now a complete five wave impulse.

This wave count sees three first and second waves within an impulse unfolding downwards: intermediate waves (1) and (2), minor waves 1 and 2, and now minute wave i. Minute wave ii should be more brief than minor wave 2 which lasted 11 days. Minute wave ii may be expected to last a Fibonacci 3, 5 or 8 days. So far it would be unlikely to be over in just two days at the lower cyan trend line. It may continue for another one or three days and end about the upper cyan line.

Minute wave ii may not move beyond the start of minute wave i above 2,104.27. However, it should not get anywhere near that point and it should not last much longer if any than 11 days.

This first alternate bear wave count has a lower probability than the main bear wave count. It is less likely that a first wave would be this extended.

SECOND ALTERNATE DAILY CHART

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

I have previously noted this idea in the text and now it is time to chart it, so that the implications are clear.

Within the downwards impulse unfolding, it may be that intermediate waves (1) and (2) are complete and now minor waves 1, 2 and 3 may also be complete within intermediate wave (3).

This wave count expects minor wave 5 to be extended within intermediate wave (3). Minor wave 5 should also show a strong increase in momentum, so that at its end intermediate wave (3) has clearly stronger momentum than intermediate wave (1).

There is no difference to the target for intermediate wave (3). This wave count makes a difference to the invalidation point. Minor wave 4 may not move into minor wave 1 price territory above 2,053.21.

This wave count also has a lower probability than the main bear wave count. It is possible that a fifth wave is the strongest extension within a third wave impulse, but this is less common for the S&P than the third wave being the strongest extension. This wave count would be more typical of commodities than the S&P.

Minor wave 2 lasted 11 days. Minor wave 4 may last a Fibonacci 8 or 13 days, so that the proportion between these two corrections is similar and the wave count has the right look.

Minor wave 4 would most likely be shallow and would be very likely to find strong resistance at one of the cyan trend lines.

TECHNICAL ANALYSIS

DAILY CHART

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

Upwards movement for Tuesday comes with a slight increase in volume. There was some support for the rise in price. Volume remains lower than the prior downwards day of 11th February though, so overall the volume profile is still more bearish than bullish.

In the short term, this indicates there may yet be a little more upwards movement before this correction is over.

ADX indicates the market is no longer trending. ATR agrees. These two indicators are based on averages, so they are lagging. ADX does not indicate a trend change. At this stage, if the trend resumes, then it would still be downwards.

On Balance Volume has come up to almost touch the pink line. This may help to stop upwards movement of price here.

RSI is now close to neutral, so this allows plenty of room for the market to fall again.

Stochastics is returning from oversold. This too allows plenty of room for the market to fall again.

In the short term, I can see no weakness in this upwards movement. Volume has increased, MACD shows no divergence at the hourly chart level, and there is no divergence between price and RSI or Stochastics at today’s new high compared with the last high of 10th February. A lack of weakness today may be a warning that price may yet continue a little higher before the correction is over.

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 my modified 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 @ 08:59 p.m. EST.