A new low below 2,066.69 invalidated the hourly Elliott wave counts.
At that stage, a third wave down was expected to be in the early stages.
Summary: A third wave has most likely begun. I cannot see a five down complete yet on the hourly chart, so more downwards movement should be expected tomorrow. The first invalidation point for a small fourth wave correction is at 2,067.49. Along the way down, use the sloping trend line on the hourly chart for resistance. When that line is breached by upwards movement expect a bounce has arrived. A target for this third wave to end is at 1,947 in the first instance, and 1,850 if price falls through the first target.
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.
The wave count is changed today to again see primary wave B or X as a zigzag completed earlier. Primary wave C should subdivide as a five and primary wave Y should begin with a zigzag downwards. This downwards movement is either intermediate waves (1)-(2)-(3) of an impulse for primary wave C or minor waves A-B-C of a zigzag for intermediate wave (A). Both these ideas need to see a five down complete towards the target, so at this stage there is no divergence in expectations regarding targets or direction.
Primary wave A or W lasted three months. Primary wave Y or C may be expected to also last about three months.
Within the new downwards wave of primary wave C or Y, a first and second wave, or A and B wave, is now complete. Intermediate wave (2) or minor wave B lasted a Fibonacci 13 days exactly. At 1,947 intermediate wave (3) or minor wave C would reach 1.618 the length of intermediate wave (1) or minor wave A. If price falls through this first target, or gets there and the structure is incomplete, then the next target would be at 1,850 where intermediate wave (3) or minor wave C would reach 2.618 the length of intermediate wave (1).
No second wave correction may move beyond the start above 2,104.27 within intermediate wave (3) or minor wave C.
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 a complete zigzag. Primary wave C downwards may be underway and within it intermediate waves (A) and (B) are complete. No second wave correction may move beyond its start above 2,104.27 within intermediate wave (C).
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.
I cannot yet see a complete five wave structure downwards at the hourly chart level. If the small green candlesticks labelled minuette waves (ii) and (iv) are both corrections at the same degree, then a first wave may be complete at the low labelled minute wave i. The following correction was very shallow and brief for a quick second wave.
Minor wave 1 downwards would likely be incomplete. When minute waves iii and iv within it are complete, then a target for minor wave 1 to end may be calculated. That cannot be done yet, but I may be able to do that tomorrow. In the absence of a target for minor wave 1 support trend lines should be used.
Ratios within minute wave i are: there is no Fibonacci ratio between minuette waves (i) and (iii), and minuette wave (v) is just 0.13 points short of 1.618 the length of minuette wave (i).
At 2,019 minute wave iii would reach 1.618 the length of minute wave i. I do not think this target will be particularly useful though because minute wave ii lasted barely one hour, so minute wave iv should also be over quickly. The next reasonable bounce should be minor wave 2 and not minute wave iv.
The downwards sloping cyan trend line should be more useful. Along the way down, price should find resistance at that trend line. Expect downwards movement to continue while price remains below this trend line. When price breaks above that line expect a bounce has arrived.
Minute wave iv may not move into minute wave i price territory above 2,067.49.
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.
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).
Today I have a new wave count at the daily chart level for the bear. The downwards movement labelled intermediate wave (1) looks like a five and I have long tried to see if it will fit. If minor wave 2 is seen as a double zigzag with a triangle for wave X within it, then the subdivisions all fit nicely.
Ratios within intermediate wave (1) are: minor wave 3 is 7.13 points short of 6.854 the length of minor wave 1, and minor wave 5 is just 2.81 points longer than 0.618 the length of minor wave 3. These excellent Fibonacci ratios add some support to this wave count.
Intermediate wave (2) was a very deep 0.93 zigzag (it will also subdivide as a double zigzag). Because intermediate wave (2) was so deep the best Fibonacci ratio to apply for the target of intermediate wave (3) is 2.618 which gives a target at 1,428.
Within intermediate wave (3), minor waves 1 and 2 are complete. The upwards movement for minor wave 2 does have a strong three wave look to it at the daily chart level. Minor wave 2 was another deep correction at 0.87 of minor wave 1. Targets for minor wave 3 are 1.618 and 2.618 the length of minor wave 1.
It is still possible (but still less likely) that primary wave 1 is unfolding as a leading diagonal. I will keep that chart up to date and will publish it if and when it begins to diverge from the idea presented here. For now I want to keep the number of charts published more manageable.
All the subdivisions at the hourly chart level for bull and bear are again the same. Targets and invalidation points are the same. The most important piece of analysis on this chart is the short term resistance line. When that is breached expect a bounce. While price remains below it expect price to keep falling.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: An increase in volume for a strong downwards day supports the fall in price. On Balance Volume remained below the green and dark blue trend lines. The dark blue line particularly has offered strong resistance and is repeatedly tested. When / if price bounces for a smaller bear market rally, look for OBV to lead the way again. If it again comes up to touch that trend line, then that may be when and where price ends a bounce.
I am adding a new trend line to OBV today. It is not too steep, but it has only been tested once and is not long held. It is not very technically significant. This cyan trend line may offer some support. If OBV breaks below it, that would be further bearish confirmation.
The bearish engulfing candlestick pattern was a good warning that the bear market rally was over. The pattern is confirmed now with a strong downwards day to follow it.
Today ADX is turning up, but it is below 15. A downwards trend would be indicated when ADX reaches above 15 and is increasing.
ATR is beginning to increase indicating a potential new trend.
Neither RSI nor Stochastics are oversold. There is plenty of room for this market to fall.
Price sliced through the 200 day SMA. The next line of support would be the purple horizontal trend line at 2,020.
Along the way down, upwards corrections may find some resistance at the 9 day EMA.
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 06:35 p.m. EST.