A strong upwards day changes the Elliott wave count.
Summary: The trend is still down, but a bear market rally continues and is not done yet. A slight new high above 2,116 is expected in the next few days now. Thereafter, the downwards trend should resume in force. This bear market rally is extremely unlikely to make a new all time high. It is expected to stop before 2,134.72. It may end in three more days.
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 click 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 – COMBINATION OR FLAT
Cycle wave IV should exhibit alternation to cycle wave II.
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 (see this channel on weekly and monthly charts).
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.
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.
Primary wave B or X is an incomplete zigzag unfolding upwards. If cycle wave IV is an expanded flat correction, then primary wave B may make a new high above the start of primary wave A at 2,134.72. If cycle wave IV is a combination, then primary wave X may make a new high above the start of primary wave W. There is no upper invalidation point for these reasons.
Primary wave A or W lasted three months. When it arrives primary wave Y or C may be expected to also last about three months.
Intermediate waves (A) and (B) together lasted a Fibonacci 34 days within primary wave B or X. Intermediate wave (C) may complete in a total Fibonacci five days, which would see it continue now for a further three days.
DAILY CHART – TRIANGLE
Cycle wave IV may unfold as a shallow triangle. This would provide alternation with the 0.41 zigzag of cycle wave II.
Primary wave B may be unfolding as a zigzag. Primary wave B may make a new high above the start of primary wave A at 2,134.72 as in a running triangle. There is no upper invalidation point for this wave count for that reason.
The whole structure moves sideways in an ever decreasing range. The purpose of triangles is to take up time and move price sideways. A possible time expectation for this idea may be a total Fibonacci eight or thirteen months, with thirteen more likely. So far cycle wave IV has lasted six months.
Today both hourly wave counts will be the same.
Wednesday’s session closed with a strong upwards day above the 200 day moving average. The length and duration of this upwards movement over the last three days does not look to be part of the prior wave down.
The downwards wave labelled intermediate wave (B) was very difficult to analyse. When movements prove to be particularly hard to analyse they often turn out to be B waves. That may be what has happened here. It will subdivide well as a zigzag, and this has good proportions. It also resolves the problem of a second wave correction following a first wave leading diagonal which should have been deep but was not. If that was minor wave B, then it would not have a tendency to be particularly deep.
Wednesday’s upwards movement breached the downwards sloping blue trend line drawn on intermediate wave (B). This is confirmation that the wave down labelled intermediate wave (B) is over and a new wave up is underway.
There may not be a Fibonacci ratio between intermediate waves (A) and (C). The best way to calculate a target for intermediate wave (C) to end may be to use the ratios between minor waves 1, 3 and 5 within it. When minor waves 3 and 4 are complete then a target for intermediate wave (C) may be calculated.
For now it should be expected that intermediate wave (C) is extremely likely to move at least slightly above intermediate wave (A) at 2,116.48 to avoid a truncation.
No second wave correction may move beyond its start below 2,045.90 within minor wave 3.
The upwards sloping channel is a base channel about minor waves 1 and 2. Minor wave 3 should have the power to break above that channel. When it has done that, then the upper edge may provide support for minor wave 4.
The invalidation point may be moved up to the high of minor wave 1 when minor wave 3 is complete.
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. Cycle degree waves should be expected to last about one to several years, so this expectation is reasonable. It would be extremely unlikely for this idea that cycle wave V was close to completion, because it has not lasted nearly long enough for a cycle degree wave.
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. The breach must be by a close of 3% or more of market value. 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.
Intermediate wave (1) is a complete five wave impulse and intermediate wave (2) is a complete three wave zigzag. Subdivisions at the hourly chart level would be the same for this wave count as for the other two wave counts; A-B-C of a zigzag subdivides 5-3-5, exactly the same as 1-2-3 of an impulse.
For this wave count, when the next five up is complete that would be intermediate wave (3). Within intermediate wave (3), no second wave correction may move beyond the start of its first wave below 2,019.39.
This wave count does not have support from regular technical analysis and it has a big problem of structure for Elliott wave analysis. I do not have confidence in this wave count. It is presented as a “what if?” to consider all possibilities.
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).
The bear wave count sees a leading diagonal for a primary degree first wave unfolding. Within leading diagonals, the first, third and fifth waves are most commonly zigzags but sometimes may appear to be impulses. Here intermediate wave (1) is seen as a complete zigzag.
Intermediate wave (2) is now seen as an incomplete zigzag within the leading diagonal. It may not move beyond the start of intermediate wave (1) above 2,134.72. This wave count expects minor wave C to end midway within its channel, above the end of minor wave A at 2,116.48 but not above 2,134.72.
All the subdivisions on the hourly chart are the same now except for the degree of labelling.
The material difference between this very bearish wave count and the first bull wave count is the invalidation point at 2,134.72.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: A strong upwards day to close again above the 200 day moving average has necessitated a change in the wave count. However, it again comes on volume which is lighter for upwards days than it is for downwards days. Volume consistently supports downwards movement and does not support upwards movement.
The black ADX line is declining indicating the market is not trending. ATR disagrees; its range is expanding which is more typical of a trending market.
Upwards movement may continue until Stochastics reaches overbought. Two more horizontal lines for resistance are drawn. If price reaches either of these lines while Stochastics reaches overbought, then upwards movement may be expected to end there.
On Balance Volume is a reasonably reliable leading indicator. The breach of the green trend line by OBV was a very bearish signal. If OBV comes up far enough to touch that trend line, it may assist to indicate when and where upwards movement in price may come to end.
Overall, the regular technical analysis picture indicates that this upwards movement is more likely a bear market rally than the resumption of a bull market. Volume on downwards days is stronger than upwards days and overall volume is declining while price moves higher. OBV is very bearish and much of this upwards movement came with a decline in ATR.
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.
To the upside, for Dow Theory, I am watching each index carefully. If any make new all time highs, that will be noted. If they all make new all time highs, then a continuation of a bull market would be confirmed. So far none have made new all time highs.
This analysis is published about 8:29 p.m. EST.