Sideways movement followed by a short upwards thrust was expected.
This is somewhat what happened, but the Elliott wave triangle was invalidated.
Summary: The trend is still down, but a bear market rally continues and is not done yet. It may end at the end of this week. A new high above 2,116 is expected. Targets for this upwards move to end are either 2,118 or 2,128. 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. So far intermediate wave (C) has lasted twelve days. It may end in a further one day to total a Fibonacci thirteen. Give or take one more day in addition would still see an acceptable Fibonacci duration.
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, the two hourly charts are different today.
Today I favour this first hourly chart.
Minor wave 4 may have completed as a shallow 0.31 combination: zigzag – X – flat correction. This provides good alternation with the deeper 0.44 zigzag of minor wave 2.
At 2,128 minor wave 5 would reach equality in length with minor wave 1. This is the most common Fibonacci ratio for a fifth wave. There is no Fibonacci ratio between minor waves 3 and 1, so this makes it more likely that minor wave 5 shall exhibit a Fibonacci ratio to either of 3 or 1. The target has a good probability.
Minute waves i and ii are complete within minor wave 5.
No second wave correction may move beyond the start of its first wave below 2,086.77 within minute wave iii.
If upwards movement continues to the target for two more days and the structure looks to be complete at the hourly chart level, then that may be it for this bear market rally.
Following completion of the structure, a breach of the wider black channel (copied over from the daily chart) would be required for earliest trend channel confirmation of a trend change.
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 idea is presented second only because that is how I developed the charts. I would judge this second idea to have a lower probability than the first idea presented for the hourly bull wave count.
Both these ideas work in exactly the same way for bull and bear wave counts because both bull and bear wave counts expect that a zigzag is completing upwards. The degree of labelling is different; the bear has everything one degree lower.
What if minute wave iv was over earlier as previously labelled?
Here there is not very good alternation between minute waves ii and iv. Minute wave ii is a shallow 0.44 zigzag and minute wave iv is a deeper 0.52 zigzag. They are the same kind of structure. This reduces the probability of this wave count to less than the first idea.
At 2,118 minute wave v would reach equality in length with minute wave i.
Minute wave v may be unfolding as an ending expanding diagonal for this idea. Minuette wave (iii) must move higher at the start of tomorrow’s session for the diagonal to be expanding. Thereafter, minuette wave (iv) must overlap back into minuette wave (i) price territory and must be longer than minuette wave (ii) in length. It may not move beyond the end of minuette wave (ii) below 2,080.95.
It is extremely unusual for a fifth wave ending diagonal to end in a truncation. That is why for this second idea the diagonal should be expanding. A contracting diagonal may not be able to end above 2,116.48.
This second idea also expects more upwards movement. The structure is incomplete. The target is lower, but because the structure of the diagonal should be choppy and overlapping it may need more time to reach the lower target.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Again, an upwards day comes on lighter volume than downwards days. The rise in price is not supported by volume and is suspicious. This supports the main and bearish Elliott wave counts. Overall, as price rises volume is declining.
Today there is some divergence with the high today and On Balance Volume. OBV has not managed to make a new high above the prior high of 20th November while price did make a new high. This indicates weakness in upwards movement of price. I am adding a new short trend line to OBV today. This is very shallow (almost horizontal) and repeatedly tested but not long held. It is reasonably technically significant. This short dark blue line may assist to show when upwards movement for price comes to an end. If OBV again touches that trend line, that may be when price ends the bear market rally.
ADX still indicates the market is not trending but consolidating. A range bound trading approach would expect some more upwards movement from here to not end until price finds resistance at one of the two upper horizontal trend lines and Stochastics is overbought at the same time.
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 08:12 p.m. EST.