Downwards movement was expected, but did not happen. Price remains below the invalidation point and has again found resistance exactly at the pink trend line.
Summary: The mid term target is now at 2,006 and may be met in five sessions if subminuette wave iii exhibits a Fibonacci duration and ratio of 2.618 the duration of subminuette wave i. At this stage the wave count now expects a very strong increase in downwards momentum.
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Bullish Wave Count
If primary wave 3 is over then primary wave 4 should begin. Upwards movement from the low at 666.79 subdivides now as a complete 5-3-5. For the bull wave count this is seen as primary waves 1-2-3. The wave count sees intermediate wave (5) as an ending contracting diagonal. Ending diagonals require all sub waves to be zigzags.
Primary wave 2 was a relatively shallow 0.41 zigzag lasting 12 weeks. Primary wave 4 may be more shallow and is most likely to be a flat, combination or triangle. It may be longer lasting than primary wave 2 as these types of sideways corrective structures tend to be more time consuming than zigzags. Primary wave 4 is likely to end in the price territory of the fourth wave of one lesser degree between 1,730 – 1,647. It may last about 21 or possibly 34 weeks. So far it is in its eighth week.
To see a weekly chart and how to draw the aqua blue trend lines and the black channel, go here. Primary wave 4 should break below the black channel.
Primary wave 4 may not move into primary wave 1 price territory below 1,370.58. Invalidation of this bull wave count would provide full confidence in the bear wave count.
Because primary wave 4 may be an expanded flat, running triangle or double combination it may include a new high beyond its start at 2,119.59. If this happens the bear wave count would be invalidated. Before that becomes a possibility though, primary wave 4 should begin with a clear five down on the daily chart.
There is triple (quadruple?) divergence with price and MACD at the weekly chart level supporting the idea of a trend change, either already or coming up soon.
A close 3% or more of market value below the double aqua blue trend line would provide trend line confirmation of a sizeable trend change. I will only have confidence in this wave count when there is confirmation of this trend change. When this trend line is again breached I will calculate where the close needs to be.
A new low below 1,980.90 would provide further confirmation of a trend change. At that stage I will use DJIA and NASDAQ to apply Dow theory to confirm a substantial trend change.
The last substantial downward movement for the S&P was primary wave 2 back in June to October, 2011. During this primary degree wave down the 34 day SMA was below the longer 144 day SMA, and price was below both. Once primary wave 3 got underway the 34 day SMA moved above the 144 day SMA and has remained above since December 2011. A cross again of these two moving averages would provide strong confidence in a substantial trend change. I have chosen to use these two ranges because they’re Fibonacci numbers, and these two in conjunction worked so nicely for primary wave 2.
So far within the sideways movement the strongest volume is still down days. This indicates that when the breakout comes from this sideways consolidation phase it is more likely to be down than up.
A trend line drawn from the start of minute wave i at 2,119.59 to the end of minute wave ii and extended out again continues to perfectly show where upwards movement is finding resistance as a series of three second wave corrections meet the line.
Minuette wave (iii) may total a Fibonacci thirteen or twenty-one days. So far it has lasted only four days.
I had thought it very unlikely that subminuette wave ii could move higher, but it has. Again it ends just on the pink trend line.
When a third wave begins with a series of overlapping first and second waves, with deep second wave corrections, it normally indicates extreme momentum in the direction of the trend which in this case is down.
Subminuette wave ii now shows on the daily chart as a clear three with three candlesticks. Because it shows so clearly on the daily chart it is likely that its counterpart subminuette wave iv will also show up on the daily chart, because this would give the impulse of minuette wave (iii) a clear five wave look at the daily chart level.
At 2,006 subminuette wave iii would reach 2.618 the length of subminuette wave iv. When subminuette wave iii is over I would expect a brief interruption to the downwards trend.
When subminuette waves iii and iv are complete then I will again calculate a target for minuette wave (iii).
Subminuette wave iii must move below the end of subminuette wave i at 2,072.37. A new low below this point would meet a core Elliott wave rule and provide some confidence in the target.
Subminuette wave ii may not move beyond the start of subminuette wave i above 2,111.27.
Alternate Bullish Wave Count 1
This alternate wave count is identical to the main wave count up to the low labelled minor wave 4. Thereafter, it sees minor wave 5 incomplete.
The lower 2-4 trend line of the contracting diagonal is now breached by three full daily candlesticks below it and not touching it. Diagonals normally adhere very well to their trend lines and this part of the wave count now looks wrong. Because this wave count looks so wrong I will publish another bullish alternate below.
This wave count is still technically possible but it has a very low probability. The breach of the 2-4 trend line is the only reason why this wave count is an alternate.
Within the triangle of minute wave b, if minuette wave (c) continues further it may not move beyond the end of minuette wave (a) below 2,039.69. If we see a new low below this point this week I will discard this alternate wave count.
It is at this stage that this alternate wave count diverges from the main wave count. A new high above 2,114.86 (the high of minute wave ii, bullish wave count) would increase the probability of this alternate.
Alternate Bullish Wave Count 2
Within intermediate wave (5) minor wave 1 subdivides as a five wave impulse. Minor wave 3 should have begun for this wave count.
Within minor wave 3 there is too much overlapping at the start for it to have reached its middle. The sideways movement labelled as a triangle for subminuette wave b may not be a second wave correction (second waves may not have a triangle as the sole corrective structure) nor may it be the first structure in a combination for a second wave because a triangle may not be the first corrective structure within a combination. Because this piece of movement may not be a second wave another possibility must be considered.
Minute wave i may be unfolding as a leading diagonal. Within the diagonal the third wave would be incomplete, and within the zigzag of minuette wave (iii) the triangle is subminuette wave b. This resolves the problem of this piece of movement not being a second wave.
Within minuette wave (iii) of the diagonal subminuette wave c is very likely to move at least slightly above the end of subminuette wave a at 2,119.59 to avoid a truncation.
Within a diagonal the following fourth wave correction should move back into first wave price territory and may not move below the end of minuette wave (ii) below 1,980.90.
My reasons for publishing this alternate are:
1. For a while now the first alternate has the wrong look.
2. It illustrates that a new high may indicate a long sustained rise to new all time highs.
3. To illustrate why the price point 1,980.90 would provide such strong confirmation of a primary or cycle degree trend change; a new low below 1,980.90 would invalidate the only other bullish wave count that I have been able to see (and of which I am satisfied the subdivisions and Fibonacci ratios are correct).
If we see a new high above 2,119.59 in the next couple of weeks this bullish alternate may become my new main wave count. It is very bullish indeed.
At 2,571 intermediate wave (5) would reach 2.618 the length of intermediate wave (3). Both intermediate waves (3) and (5) would be extended.
If price keeps rising through the first target, or if when it gets there the structure is incomplete, then the second target would be used. At 2,880 primary wave 3 would reach 2.618 the length of primary wave 1.
Bear Wave Count
The subdivisions within primary waves A-B-C are seen in absolutely exactly the same way as primary waves 1-2-3 for the bull wave count. The alternate bull wave count idea also works perfectly for this bear wave count.
To see the difference at the monthly chart level between the bull and bear ideas look at the last historical analysis here.
At cycle degree wave b is over the maximum common length of 138% the length of cycle wave a, at 167% the length of cycle wave a. At 2,393 cycle wave b would be twice the length of cycle wave a and at that point this bear wave count should be discarded.
While we have no confirmation of this wave count we should assume the trend remains the same, upwards. This wave count requires confirmation before I have confidence in it. Full and final confirmation that the market is crashing would only come with a new low below 1,370.58. However, structure and momentum should tell us long before that point which wave count is correct, bull or bear.
This analysis is published about 07:27 p.m. EST.