Again, sideways movement continues exactly as expected.
Summary: This bounce is either another second wave correction or a fourth wave correction, and it should continue for a further two (more likely) or seven (less likely) trading sessions. If price moves higher from here, then look for resistance at the downwards sloping cyan trend line on the daily charts.
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 a few 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 exhibits a Fibonacci number, it would most likely complete in a Fibonacci eight or thirteen sessions total. So far it has lasted six sessions.
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 zigzag, 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.
Sideways movement may be a continuation of subminuette wave x as a double zigzag.
X waves may be any corrective structure, including a multiple. It is W, Y and Z which may only subdivide as single corrections each, so that the maximum number of corrective structures in a multiple is three.
Within micro wave Y, at 1,853 submicro wave (C) would reach equality in length with submicro wave (A).
If a double zigzag is unfolding upwards for a second wave, then when the X wave within it is complete the second zigzag should move price higher. The 0.618 Fibonacci ratio at 1,979 would be a reasonable target for this structure to end.
Minuette wave (ii) may not move beyond the start of minuette wave (i) above 2,081.56.
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. It could also be a double zigzag as per the labelling in the first bear hourly chart.
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 may be unfolding as an expanded flat correction.
If minute wave iv is unfolding as a larger flat correction, then within it minuette wave (b) must retrace a minimum 90% of minuette wave (a) at 1,821.95.
If minute wave iv is unfolding as a combination, then there is no minimum requirement nor maximum limit for minuette wave (x).
If minute wave iv is unfolding as a triangle, then the high of subminuette wave b could possibly be the end of an A wave within a triangle, as a double zigzag. This would expect a lot more sideways movement to last several more days. It is possible at this stage, but I still judge it the least likely structure to now be unfolding.
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. It is still unlikely to be over today.
Click chart to enlarge. Chart courtesy of StockCharts.com.
As price fell to the last low, it came on increasing volume. The fall in price was supported by volume.
As price has moved higher then sideways for the last six days, overall volume remains lighter than 20th January, but it is not so clearly declining with the last two days showing an increase in volume. Today’s volume is still lighter than the first day of the correction on 21st January, so overall volume is not increasing. This remains mostly corrective.
ADX is flat and ATR is declining. Price is range bound. The market is consolidating.
On Balance Volume may find resistance at the green line and support at the blue line. A break out of this range may indicate the direction of price to break out.
If the market is consolidating at this stage, then it should be expected that price will swing from support to resistance and back again. Stochastics may be used to show when each swing ends. When Stochastics reaches overbought, then expect price to find resistance and turn down. With Stochastics not yet overbought and increasing further, upwards swings from price should be expected within this consolidation.
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 @ 09:53 p.m. EST.