Upwards movement continued which favours the bear Elliott wave count short term.
The correction may be almost over and now a target may be calculated for it in which I have more confidence.
Summary: A zigzag upwards may be almost complete. A target for it to end is at 2,037. It may end right at the end of Friday’s session or it may end early on Monday. Thereafter, the bear wave count expects a fifth wave down.
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 go 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
Cycle wave IV should exhibit alternation to cycle wave II. Cycle wave IV may find support at the teal channel on the weekly and monthly charts.
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.
Cycle wave IV is likely to 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.
If cycle wave IV is a flat correction, then within it primary wave B must subdivide as a corrective structure (a three or a triangle) and must end at least 90% the length of primary wave A at 2,108.44. Primary wave B of an expanded flat may make a new all time high above 2,134.72. There is no upper invalidation point for this idea.
If cycle wave IV is a combination, then it would be labelled primary waves W-X-Y. Primary wave X may be any corrective structure and it has no minimum requirement, unlike the B wave within a flat. X waves within combinations are most often deep corrections to achieve the purpose of a sideways movement. X waves may move beyond the start of W waves. There is no upper invalidation point for this idea either.
If cycle wave IV is a triangle, then primary wave B upwards has no minimum requirement, must subdivide as a three wave structure (most likely a zigzag), and may also make a new all time high as in a running triangle. There is no upper invalidation point for this idea either.
Of all Elliott waves it is B waves which exhibit the greatest variety in structure and form. They are extremely difficult to analyse. Often, it is only when they are complete that their structure can be determined.
At this stage, primary wave B looks like it may be unfolding as a zigzag. This may change though.
Because there is now a five wave structure upwards on the hourly chart this confirms that intermediate wave (B) was over three days ago as an expanded flat correction. Primary wave B or X is subdividing so far as a simple zigzag. The structure may be close to complete, or intermediate wave (C) may extend and continue next week. I will use the wide channel on the hourly chart below to indicate when this upwards movement is over.
A clear five wave structure is developing upwards. This confirms that the correction for intermediate wave (B) was over three days ago as an expanded flat.
At 2,139 intermediate wave (C) would reach equality in length with intermediate wave (A). This would see primary wave B reach above the minimum 90% requirement for a B wave within a flat correction at 2,108.44.
If this zigzag completes before the target and minimum requirement for a flat is met, then it would be relabelled primary wave X and cycle wave IV may be unfolding as a combination.
If intermediate wave (C) is extending, then within it minor wave 2 may not move beyond the start of minor wave 1 below 1,990.73. A new low below 1,990.73 would provide final price confirmation that the upwards movement is a complete zigzag.
In the first instance, if price breaks below the wide black channel about this upwards zigzag, then I would expect that provides trend channel confirmation that primary wave B is over, whether or not the target is met.
I do not have confidence in this target. I think it looks to be too high. However, this is the most common ratio between A and C waves within a zigzag, so that calculation is possible.
ALTERNATE BULL ELLIOTT WAVE COUNT
It is possible to see cycle wave IV a completed flat correction. This would provide some structural alternation with the zigzag of cycle wave II.
This is a regular flat but does not have a normal regular flat look. Primary wave C is too long in relation to primary wave A. Primary wave C would be 3.84 short of 4.236 the length of primary wave A. While it is possible to also see cycle wave IV as a complete zigzag (the subdivisions for that idea would be labelled the same as the bear wave count below, daily chart) that would not provide structural alternation with the zigzag of cycle wave II, and so I am not considering it.
This idea requires not only a new high but that the new high must come with a clear five upwards, not a three.
At 2,562 cycle wave V would reach equality in length with cycle wave I. Cycle wave I was just over one year in duration so cycle wave V should be expected to also reach equality in duration.
I added a bear market trend line drawn using the approach outlined by Magee in “Technical Analysis of Stock Trends”. When this lilac line is clearly breached by upwards movement that shall confirm a trend change from bear to bull. If it comes with a clear five up, then this wave count would be further confirmed.
While price remains below the bear market trend line, we should assume the trend remains the same: downwards.
The invalidation point for this idea now must be moved up. Minor wave 2 is a complete expanded flat correction and minor wave 3 is beginning. No second wave correction may move beyond its start below 1,990.73 within minor wave 3.
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).
I am now seeing a third wave complete at the last major low for intermediate wave (3). Intermediate wave (3) is 17.31 longer than 6.854 the length of intermediate wave (1).
Minor wave 5 is seen as complete and slightly truncated.
A channel drawn using Elliott’s technique no longer works. Sometimes fourth waves aren’t contained within such a channel, which is why Elliott developed a second technique to use when they breach the channel.
Intermediate wave (2) was a very deep 0.95 expanded flat lasting 38 sessions. Intermediate wave (4) should exhibit alternation, is most likely to be more shallow, and be a quicker zigzag or zigzag multiple. It may not move into intermediate wave (1) price territory above 2,099.18.
At this stage, it looks like intermediate wave (4) is unfolding as a zigzag and is almost complete or even complete at the end of this session.
Intermediate wave (4) may end in a total Fibonacci 21 sessions which would see it continue now for a further 8 sessions. Alternatively, at this stage, it is also possible it may come to a quicker end: if it ends this Friday that would see it complete in a total Fibonacci 13 sessions.
Intermediate wave (4) for this bear wave count is seen as unfolding as a zigzag in exactly the same way as primary wave B for the first wave count.
Minor wave C must subdivide as a five wave structure. Minute wave iv completed as an expanded flat and breached the channel which was drawn about minor wave C using Elliott’s first technique. The channel is redrawn using the second technique.
Minute wave v is unfolding and may be very close to completion now. At 2,037 it would reach equality in length with minute wave i. If this target is wrong, it may be a little too high. If price comes up to touch the aqua blue trend line, then that may show when and where upwards movement ends.
A clear breach of downwards movement below the wide blue channel would be first indication that intermediate wave (4) may be over and intermediate wave (5) may be underway.
A new low below 1,990.73 would provide final price confirmation that the upwards wave labelled intermediate wave (4) is not only complete but was a three wave structure. That would strongly favour a bear wave count; we would have fives downwards and a big three upwards. The trend would be down.
I will calculate a target for intermediate wave (5) downwards when there is some confirmation that intermediate wave (4) is over. I cannot do that yet.
Click chart to enlarge. Chart courtesy of StockCharts.com.
This section of the analysis is updated after first publication.
Friday’s candlestick does not come on high volume, volume decreased, although Friday’s candlestick is above the upper horizontal line of resistance. This is not a breakout. The candlestick is small and unconvincing.
The black ADX line points slowly lower indicating the market is not trending. Overall volume is declining while price moves sideways. During this sideways consolidation contained within support and resistance lines it is a downwards day which shows clearly strongest volume. This indicates the breakout is most likely to be down. This trick does not always work, but it works often enough to be a good indicator of the breakout direction.
A range bound system should be used while price remains range bound. The idea outlined here is simple, and simple is usually best. When Stochastics reaches overbought and price reaches resistance expect the end of the upwards swing and a downwards swing to begin. Expect the downwards swing to continue until Stochastics reaches oversold and price reaches support. The problem with this approach (and the reason why trading a range bound market is inherently very risky) is neither Stochastics nor support / resistance lines will show exactly where and when price will turn as they are only general guides. Stochastics can remain extreme for a few days and price can overshoot support / resistance before turning back. Trading a range bound market must be done only with careful money management. Alternatively, step aside and wait for a clear trend to emerge before reentering this market.
Volume overall is still declining during this consolidation, an upwards breakout is not indicated.
On Balance Volume remains above both short trend lines which may provide support. There is no useful trend line for OBV at this stage which may provide near resistance. The short term small bearish divergence between price and OBV disappeared on Friday. OBV works better with trend lines than it does with divergence.
A note on Dow Theory: for the bear wave count I would wait for Dow Theory to confirm a huge market crash. So far the industrials and the transportation indices have made new major swing lows, but the S&P500 and Nasdaq have not.
DJT: 7,700.49 – this price point was breached.
DJIA: 15,855.12 – this price point was breached.
This analysis is published about 05:25 p.m. EST.