Last analysis expected upwards movement with increased momentum for Monday’s session. Price has closed higher, but only after making a new low (within allowable limits), and momentum did not increase.
The wave counts are the same and for the S&P 500 remain valid.
At this stage the first and second wave counts are now expecting the same direction next, for the short term. Thereafter, they should again diverge.
The first and second wave counts still have about an even probability at the monthly chart level. Members may review monthly charts here.
Click on the charts below to enlarge.
First Wave Count.
At super cycle degree this wave count sees a very rare expanding triangle unfolding, and cycle wave d upwards within the triangle is a double zigzag which must move beyond the end of cycle wave b.
Within the second zigzag of the double, primary wave Y, wave (C) black must unfold as a five wave structure.
Waves 1 through to 3 blue are complete. Wave 2 blue unfolded as a brief zigzag, and wave 4 blue looks like a double zigzag exhibiting alternation.
Further downwards movement for wave 4 blue may not move into wave 1 blue price territory. This wave count is invalidated with movement below 1,380.39.
At 1,587 wave 5 blue would reach 1.618 the length of wave 1 blue. If price passed through this first target we shall use the second.
At 1,607 wave (C) black would reach equality in length with wave (A) black.
Elliott’s second channeling technique may be used about this impulse of wave (C) black. The first trend line is drawn from the lows of 2 to 4 blue, then a parallel copy is placed upon the high of wave 3 blue. Wave 5 blue should end either mid way within the channel or about the upper edge.
If this wave count is invalidated with downwards movement below 1,380.39 then the second daily wave count would be correct. At that stage it would be difficult to see how a large expanding triangle could be unfolding. Movement below 1,266.74 would invalidate the expanding triangle scenario at the monthly chart level and at intermediate degree (please see monthly charts here for an explanation of the wave count at higher degrees).
Monday began with further downwards movement for wave c orange within wave (ii) green which remained above the invalidation point. Thereafter, price turned back upwards as expected but we did not see momentum increase. At this stage only a first wave within wave (iii) green may have unfolded and momentum would not be expected to increase markedly until we move towards the middle of this third wave.
At 1,458 wave (iii) green would reach 1.618 the length of wave (i) green.
If wave (ii) green continues any lower tomorrow then it may not move beyond the start of wave (i) green. This wave count is invalidated with movement below 1,403.28.
Second Wave Count.
It remains possible that we have recently seen a major trend change in the S&P 500 and the DJIA. We should not place any confidence in this wave count prior to confirmation of a trend change with movement below 1,380.39.
We should always assume that the trend remains the same, until proven otherwise. At this stage we have a little indication of a trend change with a clear channel breach, but we will not have price confirmation until we see movement below 1,380.39 invalidating the first daily wave count.
The upper black line is the upper edge of a parallel channel drawn on the monthly chart. This area may have provided resistance.
The channel drawn about the zigzag of wave (Z) black using Elliott’s technique for a correction is very clearly breached. This is some indication that this wave count may be correct and we may have seen a trend change.
Within the new downwards trend no second wave correction may move beyond the start of the first wave. This wave count is invalidated with any movement above 1,474.51.
If we are in a new downwards trend we may have seen a series of overlapping first and second waves, or we may be seeing a leading diagonal unfolding in a first wave position as this chart is labeled above.
If price breaks below 1,380.39 then this would be the preferred wave count and we should expect a new downwards trend for months. At that stage I would calculate downwards targets for you. To do so prior to confirmation would be premature.
At this stage at the monthly chart level this second wave count is about even in probability with the first. This wave count has a primary wave B within a flat correction which is just over 138% the length of primary wave A, reducing the probability. Within primary wave B the structure is a rare triple zigzag further reducing the probability to more even with the first wave count which also has a very rare structure.
If a leading diagonal is unfolding then wave (iv) green within the diagonal would be incomplete. At 1,458 wave c orange within wave (iv) green would reach 1.618 the length of wave a orange, and wave (iv) green would be 0.81 the length of wave (ii) green which is the maximum common length for a fourth wave in relation to the third for a diagonal.
Within a diagonal the fourth wave should overlap into wave one price territory but may not move beyond the end of the second wave. This wave count is invalidated with movement above 1,470.96.
Wave c orange must subdivide into five waves; either an ending diagonal or an impulse. It would be likely to end either about the upper trend line drawn here about the zigzag of wave (iv) green, or may overshoot the trend line.
In the short term if wave b orange extends any lower it may not move beyond the start of wave a orange. This wave count is invalidated with movement below 1,403.28.