A short term target for downwards movement for Friday was 2,070 – 2,069.
Price moved lower to reach 2,067.91 before turning up as expected.
Summary: Both wave counts expect upwards movement next week. If price breaks above 2,132.82, then the first wave count would be invalidated at the hourly chart level; this would strongly favour the second wave count.
Changes to last analysis are bold.
To see a weekly chart and how to draw trend lines click here.
Note regarding data for 28th July session: I am still unable to get the Google / Yahoo data feed to provide that candlestick; it remains MIA. For today’s analysis, I am relying on the candlestick on daily charts published here.
FIRST ELLIOTT WAVE COUNT
It is possible that the S&P has seen a primary degree (or for the bear count below a Super Cycle degree) trend change.
If primary wave 3 is over then primary wave 4 should begin.
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 13 or maybe even 21 weeks. So far it has completed its tenth week.
This wave count now has some confirmation at the daily chart level with a close more than 3% of market value below the long held bull market trend line.
Further confirmation would come with:
1. A new low below 2,044.02.
2. A new low below 2,022.07 to invalidate the second wave count.
3. A clear five down on the hourly chart.
4. A clear five down on the daily chart.
5. A new low below 1,820.66.
6. A break below the 50 week SMA on the weekly chart or the 200 day SMA on the daily chart.
As each condition is met the probability of a substantial trend change would increase.
At this stage, a trend change is looking somewhat likely so I’ll list points in its favour:
1. The long held bull market trend line, the strongest piece of technical analysis on ALL charts, has been breached now by a close more than 3% of market value.
2. There is quadruple negative divergence between price and MACD on the weekly chart.
3. There is double negative divergence between price and MACD on the daily chart.
4. There is persistent and strong negative divergence between price and RSI on the monthly chart. The last time this happened was October 2007 and we all know what happened after that…
5. A long held bull trend line on On Balance Volume going back to October 2014 has been breached, is no longer providing support, and is now providing resistance.
6. DJT has recently failed to confirm the continuation of a bull market. This does not indicate a bear market, but does indicate caution.
At 1,983 minute wave iii would reach 4.236 the length of minute wave i. This is the ratio I am using for this target because minute wave i was short and minute wave ii was deep.
Minute wave iii should show its subdivisions clearly on the daily chart so that when it is done it has a clear five wave impulse look to it. So far minuette wave (ii) shows up clearly. When it arrives minuette wave (iv) should also show up clearly. Minuette wave (iii) should show a strong increase in downwards momentum.
Subminuette wave b is now a complete flat correction. At 2,119 subminuette wave c would reach equality in length with subminuette wave a. Subminuette wave c may end when price touches the upper parallel channel drawn about this zigzag. The channel looks correct: it was touched twice at the lower edge and twice at the upper edge.
Subminuette wave c must subdivide as a five wave structure. It may take all of next week to unfold.
Minuette wave (ii) may not move beyond the start of minuette wave (i) above 2,132.82.
If price breaks above 2,132.82 next week, then at the daily chart level this first wave count would expect that minute wave ii is continuing sideways. The final invalidation point would be at 2,134.72.
SECOND ELLIOTT WAVE COUNT
The ending contracting diagonal may still be incomplete. Ending diagonals require all sub waves to subdivide as zigzags, and the fourth wave should overlap first wave price territory. It is Elliott wave convention to always draw the diagonal trend lines to indicate a diagonal structure is expected.
My labelling here of minute wave iv within the diagonal as a double zigzag relies upon the interpretation of “double and triple zigzags take the place of zigzags” (“Elliott Wave Principle” by Frost and Prechter, 10th edition, page 91) to be true for zigzags within diagonals. This wave down may also be labelled as a single zigzag, but that does not have as neat a fit as a double zigzag.
The diagonal trend lines are no longer clearly converging. This reduces the probability of this wave count.
If it moves any lower, then minute wave iv may not be longer than equality in length with minute wave ii at 2,022.07. If it is over here, then minute wave v up also has a limit and may not be longer than equality with minute wave iii at 2,197.84.
The best way to see where and when upwards movement may end is the upper diagonal i-iii trend line. It is very likely to be overshot.
A-B-C of a zigzag and 1-2-3 of an impulse both subdivide 5-3-5. There is no divergence in the short term between these two wave counts.
Subminuette wave iii must move price beyond the end of subminuette wave i above 2,114.24. After that a new high above 2,132.82 would invalidate the first wave count at the hourly chart level and confirm this second wave count.
At 2,150 subminuette wave iii would reach 1.618 the length of subminuette wave i. Subminuette wave iii may only subdivide as an impulse, and should show an increase in momentum beyond that seen for subminuette wave i.
BEAR ELLIOTT WAVE COUNT
The subdivisions within cycle waves a-b-c are seen in absolutely exactly the same way as primary waves 1-2-3 for the main wave count.
In line with recent Grand Super Cycle wave analysis, I have moved the degree of labelling for the bear wave count all up one degree.
This bear wave count expects a Super Cycle wave (c) to unfold downwards for a few years, and if it is a C wave it may be devastating. It may end well below 666.79.
However, if this wave down is a Super Cycle wave (y), then it may be a time consuming repeat of the last big flat correction with two market crashes within it, equivalent to the DotCom crash and the recent Global Financial Crisis, and it may take another 8-9 years to unfold sideways.
Within the new bear market, no second wave correction may move beyond the start of its first wave above 2,134.72.
The second wave count above works in the same way for this bear wave count.
ADX is below 15, almost flat, and no clear trend is yet indicated. The market is still range bound.
A range bound trading system may be better used than a trend following system. This would still expect some more downwards movement, to not end until price finds support at the lower two red horizontal trend lines and Stochastics is oversold at the same time, or to end when price finds support at the 200 day DMA and Stochastics is oversold at the same time. The 200 day SMA has been slightly overshot. Because Stochastics has not yet reached oversold, more downwards movement would still be expected from this approach until it is. But it looks now like price may not be able to get down to the lower support trend lines as it may be held up by the 200 day SMA.
Price may continue to find support about the 200 day SMA. On Balance Volume has now moved below its short green trend line which provided resistance. There is now room for the market to move up, and it may bounce up from here due to support at the SMA and continue until OBV provides resistance.
While the range bound trading approach would expect more downwards movement until Stochastics reaches oversold, price does not usually move up and down in a straight line; there are corrections along the way. This analysis would expect some upwards movement from here to be a counter movement to the downwards swing which is incomplete.
A note on Dow Theory: for the bear wave count I would wait for Dow Theory to confirm a huge market crash. For that to be confirmed the following new lows are needed:
At this time DJT is closest, but none of these indices have made new major swing lows yet.
This analysis is published about 03:05 a.m. EST.
Wow, the rally in the S&P 500 seems too strong today. Is it too strong for the first scenario?, and does that favors the second scenario? Are there more probability in the second scenario than the first based on today rise?
The momentum (MACD) on the hourly chart shows an increase, but not beyond the last rise.
So no, I’m not concerned.
I don’t like to pick winners. I think it’s best left for price to tell us which wave count is correct.
But if I did pick one I’d still go for the first wave count. Only because it’s supported by more regular technical analysis, particularly that long held bull market trend line. And RSI on the monthly chart, it’s showing so much divergence going back to November 2014.
Absence of a new VIX low (did not approach the August 5 intra-day low of 10.88) may be telling a cautionary tale…second waves are notorious for misdirecting the unwary. Movement seems subdued compared to start of minuette b up on July 28.
If we do not see a new 52 week low tomorrow in the VIX, I think we may be looking at a second wave…
Futures for Monday looking muted. Europe in the red. I think the expected bounce is going to be short-lived.