Downwards movement fits the Elliott wave count. Price remains below the invalidation point.
This bounce is so far unfolding as expected.
Summary: This bounce is either another second wave correction or a fourth wave correction, and it should continue for a further five (more likely) or ten (less likely) trading sessions.
To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.
To see detail of the bull market from 2009 to the all time high on weekly charts, click here.
Last published monthly charts can be seen 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
This wave count is bullish at Super Cycle degree.
Cycle wave IV may not move into cycle wave I price territory below 1,370.58. If this bull wave count is invalidated by downwards movement, then the bear wave count shall be fully confirmed.
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 be a flat, or combination.
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.
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. When and if these two ideas diverge, I will separate them out into two separate charts. For now I will keep the number of charts to a minimum.
Primary wave A or W lasted three months. Primary wave C or Y may be expected to also last about three months. It is now in its second month at this stage and may not be able to complete in just one more. It may be longer in duration, perhaps a Fibonacci five months. That would still give a combination the right look at higher time frames.
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 1,693 intermediate wave (3) would reach 4.236 the length of intermediate wave (1).
This daily chart and the hourly chart below both label minor wave 3 as complete. It is also possible that the degree of labelling within minor wave 3 could be moved down one degree, because only minute wave i within it may be complete. The invalidation point reflects this. No second wave correction may move beyond its start above 2,081.56 within minor wave 3. If this bounce is minor wave 4, then it may not move into minor wave 1 price territory above 1,993.26.
Price broke through support at the cyan trend line which is drawn from the August lows to September lows. This line is no longer providing resistance. The next line to offer resistance may be the downwards sloping cyan line.
At this stage, the bull and bear wave counts are essentially the same at the hourly chart level. Commentary will be with the bear wave count.
BEAR ELLIOTT WAVE COUNT
This bear wave count fits better than the bull with the even larger picture, super cycle analysis found here. It is also well supported by regular technical analysis at the monthly chart level.
Importantly, there is no lower invalidation point for this wave count. That means there is no lower limit to this bear market.
Downwards movement so far within January still looks like a third wave. This third wave for intermediate wave (3) still has a long way to go. It has to move far enough below the price territory of intermediate wave (1), which has its extreme at 1,867.01, to allow room for a following fourth wave correction to unfold which must remain below intermediate wave (1) price territory.
Intermediate wave (1) subdivides as a five wave structure with a slightly truncated fifth wave.
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 2.82 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. 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. If intermediate wave (3) ends below this target, then the degree of labelling within this downwards movement may be moved up one degree; this may be primary wave 3 now unfolding and in its early stages.
I have two scenarios for the correction which began two days ago. It may be either a second wave or a fourth wave. Looking at how far down intermediate wave (3) still needs to go on the weekly chart, I would favour the second wave scenario. That will be the main hourly wave count for that reason.
If this correction is a second wave, then it would most likely be a single or double zigzag. Because the first wave up subdivides best as a three, a zigzzag, then minuette wave (ii) may be unfolding as a double zigzag.
Double zigzags normally have relatively shallow X waves that do not make new price extremes beyond the start of the first zigzag labelled here subminuette wave w. Subminuette wave x must subdivide as a three wave structure which may be any corrective structure including a multiple.
Minuette wave (ii) may also be a flat correction. Within a flat, the B wave must retrace a minimum 90% of the A wave which for this example would be 1,821.95. If minuette wave (ii) is the most common type of flat, an expanded flat, then subminuette wave b may move below the start of subminuette wave a at 1,812.29. There is no longer a lower invalidation point for this reason.
Minuette wave (ii) may not be a triangle.
When subminuette wave b or x is complete, then subminuette wave c or y should unfold upwards.
ALTERNATE HOURLY CHART
If the degree of labelling within the last wave down is moved back up one degree, then this correction may be a fourth wave.
This wave count expects that the middle strongest part of intermediate wave (3) is over. This may be the case; an extended fifth wave down to follow this correction may be able to take intermediate wave (3) down to the target.
Minute wave iv may not move into minute wave i price territory above 1,993.26.
The first wave up of minuette wave (iv) subdivides best as a three, a zigzag. This means that minuette wave (iv) may be unfolding as either a flat, triangle or combination.
Within an expanded flat, running triangle or combination, minuette wave (b) or (x) may make a new price extreme beyond the start of minuette wave (a) or (w) below 1,812.29. There is no lower invalidation point for this wave count.
Minuette wave (b) or (x) must subdivide as a corrective structure. It may be any one of 23 possible corrective structures. So far I have labelled it as an unfolding zigzag, but it may yet morph into a different structure and the labelling may change tomorrow.
Overall, it must be understood that when price is within a consolidation as it is now it is impossible to tell which Elliott wave structure will unfold. A fourth wave may be any one of 23 possible structures. The labelling will change as the structure unfolds. It is impossible to tell what pathway price will take during the correction due to the great variety of corrective structures. My focus will be on determining when it could be over.
The structure is incomplete today. I would expect more sideways / upwards movement for a few days yet.
I would not want to label this correction as a complete zigzag at the high of 1,908.85. It would be far too brief. It is most likely incomplete.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Importantly, today’s downwards day comes with lighter volume. The fall in price was not supported by volume. This downwards movement should be viewed as part of a correction. This supports the Elliott wave counts.
If a correction is unfolding, then as price moves sideways / upwards it should come on declining volume.
The volume profile is still bearish. As price fell to the last low it came on clearly increasing volume. Now price has overall moved higher on declining volume.
ADX still indicates a trend is in place and the trend is down. ADX is a lagging indicator as it is based upon an average. Importantly, it does not indicate a trend change today; the -DX line remains above the +DX line.
ATR now disagrees. It is declining indicating the market has entered a consolidation.
The pink and blue trend lines on On Balance Volume are adjusted today. OBV may find support at the blue line. If it breaks below that, it may find support at the pink line.
The correction is returning RSI and Stochastics from oversold.
For the bear wave count I am waiting for Dow Theory to confirm a market crash. I am choosing to use the S&P500, Dow Industrials, Dow Transportation, Nasdaq and I’ll add the Russell 2000 index. Major swing lows are noted below. So far the Industrials, Transportation and Russell 2000 have made new major swing lows. None of these indices have made new highs.
At this stage, if the S&P500 and Nasdaq also make new major swing lows, then Dow Theory would confirm a major new bear market. At that stage, my only wave count would be the bear wave count.
The lows below are from October 2014. These lows were the last secondary correction within the primary trend which was the bull market from 2009.
These lows must be breached by a daily close below each point. So far the S&P has made a new low below 1,821.61, but it has not closed below 1,821.61.
DJT: 7,700.49 – this price point was breached.
DJIA: 15,855.12 – this price point was breached.
Russell 2000: 1,343.51 – this price point was breached.
This analysis is published @ 09:08 p.m. EST.