Upwards movement was expected.
A green candlestick completed and price remains above the invalidation point on the hourly chart. Some downwards movement during the session was allowed for.
Summary: The trend is still down, but a bear market rally continues and is not done yet. It may end early next week. A new high above 2,116 is expected. The target for this rally to end is now at 2,118. 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.
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 eight days which would see it continue for a further two days now, give or take one either side of this expectation would be an acceptable Fibonacci duration. If it does not manage to end in a Fibonacci eight days, then the next number in the sequence is thirteen, which would see it continue for another seven 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.
Again, both hourly charts are the same today.
The fourth wave continued lower, so the channel must be redrawn and the target recalculated.
Minor wave 4 must be over. Upwards movement to end the session subdivides as a completed impulse on the five minute chart, with a second wave correction unfolding.
At 2,118 minor wave 5 would reach equality in length with minor wave 1.
Within minor wave 5, minute wave ii may not move beyond the start of minute wave i below 2,070.29.
If this hourly wave count is invalidated by downwards movement, then it may be an outside possibility that intermediate wave (C) is over and truncated. The possibility exists, but because the truncation would be large at 19.42 it has an exceptionally low probability. I mention this only because the next downwards movement is expected to be very strong as a third wave. Look out for surprises to the downside as we near the end of this second wave correction.
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 is again the same as the first, except for the degree of labelling.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Price is range bound between the purple horizontal lines of support and resistance. Volume is declining. At this stage, this overall movement looks more like a consolidation than a trend.
ADX agrees and is declining indicating a consolidating market. ATR also agrees and the range price is moving in is declining to flat.
A range bound approach to this market would currently expect some more upwards movement until price reaches resistance and Stochastics reaches overbought at the same time. Stochastics is very close to overbought but not there yet.
The first two days of 22nd and 23rd October within this range are upwards days and have strongest volume. This would indicate an upwards breakout from this current range may be more likely than downwards. However, On Balance Volume disagrees: the break of OBV below its green trend line was a leading bearish indicator.
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 9:01 p.m. EST.