Upwards movement was expected. Price did move a little higher but completed an overall sideways day in a very small range.
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 two 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 two 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.
There are at least two different ways to label this upwards movement, so this hourly wave count and that for the bear below will be used to illustrate two different ideas. Both ideas work in the same way for both the bull and bear wave counts.
Intermediate wave (C) must subdivide as a five wave structure. It is not subdividing as a diagonal at this stage, so it is the more common impulse.
Minor wave 3 may have ended at the high for Thursday within the impulse. If this is correct, then minor wave 3 is shorter than minor wave 1 by 6.46 points. Because a core Elliott wave rule states that within an impulse a third wave may never be the shortest, this limits the fifth wave to no longer than equality in length with the third at 2,122.
On the daily chart, this wave count looks better than the second idea published with the bear hourly. Both minor waves 2 and 4 show on the daily chart as small red candlesticks and that gives this impulse the right look.
If the triangle does not hold and minor wave 4 morphs into a combination or flat correction, then it may not move into minor wave 1 price territory below 2,066.69.
This wave count would expect most likely two more days of upwards movement to just above 2,116.48 but not above 2,122.
The channel is drawn here using Elliott’s first technique: draw the first trend line from the ends of minor waves 1 to 3, then place a parallel copy on the end of minor wave 4. Minor wave 5 may end when price finds resistance at the upper edge of the channel.
After some upwards movement (whether or not it reaches above 2,116.48) a subsequent breach of the lower edge of this channel would provide trend channel confirmation that the bear market rally is over.
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 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.
This hourly wave count shows another way to look at recent upwards movement. I have checked both ideas on the five minute chart and both work. To envisage this idea for the bull wave count everything would be moved up one degree.
Minute wave iii may be incomplete. Within minute wave iii, minuette wave (iii) is 0.72 longer than 1.618 the length of minuette wave (i). Minuette wave (iv) may be completing as a triangle. At 2,098 minuette wave (v) would reach equality in length with minuette wave (i).
If the triangle of minuette wave (iv) does not hold and this small correction morphs into a combination or flat, then it may not move into minuette wave (i) price territory below 2,063.95.
If tomorrow begins with a new high, then the triangle of minuette wave (iv) may be expected to be over. The invalidation point may then be moved up to the high of minute wave i at 2,066.69. The upcoming correction for minute wave iv may not move into minute wave i price territory.
The pink channel drawn here is a base channel about minute waves i and ii. Along the way up, price may find resistance at the upper edge. If price breaks above the channel, then the upper edge may provide support.
Minute wave iii would not be shorter than minute wave i and so would not limit the length of minute wave v.
The most important 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 small downwards day with lighter volume looks corrective. On its own, lighter volume for today isn’t bullish or bearish. Overall, as price rises an increase in volume would be expected otherwise the rise in price would be suspicious.
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.
Click chart to enlarge. Chart courtesy of StockCharts.com.
From the all time high at 2,134.72, this chart notes several instances of divergence between price and the Advance Decline line.
Two bearish instances (blue lines) preceded the strong fall in price to the low of 24th August. Price made new highs on weaker breadth in both instances noted.
There was one bearish divergence (red lines) where price did not manage to make new lows but declines were stronger than advances. This too is bearish.
The current upwards movement will be watched carefully. If price makes new highs above the prior swing high of 3rd November at 2,116, then the AD line should also make new highs. If it does not, that would be a bearish indicator.
This analysis is published about 7:25 p.m. EST.