A new low below 1,872.7 provides more confidence in the hourly Elliott wave counts.
Summary: Final confidence in the resumption of the downwards trend would come with a breakout of the current consolidation, which has its lower limit about 1,870, on a downwards day with an increase in volume. At this stage, the downwards trend has likely resumed and the short term target is at 1,511. If this target is wrong, it may not be low enough. Look out for surprises to the downside; this could be the middle of a big strong third wave approaching.
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 has come up to find resistance at the upper cyan trend line. This line goes back to 20th July, 2015, (its first anchor) and is reasonably shallow, has been repeatedly tested, and has reasonable technical significance. It should be expected to offer reasonable resistance and this may end the upwards correction here.
Price found some support about the lower cyan trend line today, which is drawn across the lows from October 2014 to August 2015. Downwards momentum may show an increase once price breaks below support about this line.
At this stage, the corrective structure which has the best fit is a double zigzag. This movement now has a clear three wave look to it on the daily chart.
If this is a fourth wave correction, then the least likely structure for it would be a zigzag or zigzag multiple. That would not provide adequate alternation with the second wave zigzag.
However, alternation is a guideline, not a rule, and it is not always seen.
The probability that a fourth wave is unfolding has reduced. The probability that this bounce is a second wave has increased.
Because both bull and bear wave counts see this structure in the same way on the hourly chart, further comment 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 (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.
The correction for minuette wave (ii) may be over totalling a Fibonacci eight sessions and finding resistance at the upper cyan trend line. A small channel may now be drawn about this correction. This channel is now breached at the hourly chart level. The channel is still not clearly breached at the daily chart level. I define a breach as a full candlestick below the line and not touching it. It looks like price has moved higher at the end of Wednesday’s session for a classic throwback to the line.
Intermediate wave (2) lasted 25 sessions (no Fibonacci number), minor wave 2 lasted 11 sessions (no Fibonacci number), minute wave ii lasted 10 sessions (no Fibonacci number) and now minuette wave (ii) may have lasted a Fibonacci 8 sessions. Each successive second wave correction of a lower degree has a shorter duration which gives the wave count the right look, so far.
If minuette wave (ii) continues any higher, it may not move beyond the start of minuette wave (i) above 2,081.56. When the channel about minuette wave (ii) is breached by a full daily candlestick below it and not touching it, then the invalidation point may be moved lower at the daily chart also.
The degree of labelling within minute wave iii may also be moved up one degree. This correction may be minute wave iv. I will wait to see how momentum behaves for the next wave down to make a final decision on which degree of labelling is correct. For now I will leave the labelling as the most likely for a second wave due to the duration and the structure of a double zigzag.
If the next wave down shows a strong increase in momentum, then it would be the middle of a big third wave.
If the next wave down shows weaker momentum than minuette wave (i), then it would be a fifth wave to end minor wave 3.
The structure of this correction fits neatly as a double zigzag.
The simplest method to confirm a trend change is a trend channel or trend line.
Although downwards movement from the high labelled minuette wave (ii) does not look perfect as a five at the hourly chart level, it will subdivide as a five on the five minute chart. What is clear so far is that upwards movement for Wednesday does fit best and looks clear as a three wave structure. In the short term, a new low below 1,898.50 would provide further confidence in this wave count at least at the hourly chart level. At that stage, downwards movement may not be a fourth wave correction within an impulse unfolding upwards because price would be back within what would be first wave price territory. At that stage, the upwards wave labelled micro wave 2 would be confirmed as a complete three.
It looks like after the breach of the orange channel that price has come back up to test the lower trend line for a typical throwback.
The violet channel is a base channel drawn about micro waves 1 and 2. If the next wave down is indeed a third wave as this wave count expects, then downwards movement should have the power to break through support at the lower edge of the base channel. Along the way down, upwards corrections should find resistance at the upper edge of the base channel. If micro wave 2 moves any higher, then redraw this base channel.
If micro wave 2 moves higher, then expect it to find strong resistance at the lower orange trend line.
Micro wave 2 may not move beyond the start of micro wave 1 above 1,947.2.
At 1,511 minuette wave (iii) would reach 1.618 the length of minuette wave (i). If this target is wrong, it may be too high. The next Fibonacci ratio in the sequence is 2.618 which gives a target at 1,242. That target looks too low.
Click chart to enlarge. Chart courtesy of StockCharts.com.
I added some more support lines at just below 1,860, at 1,850 and at 1,810. These go back to December 2013, and April / May 2014.
A green daily candlestick with a long lower shadow today comes with an increase in volume. However, price made a substantial new low. The bears were able to push price a lot lower today but could not keep it there. The bulls rallied to push price back up close to the day’s highs. The rise in price was supported by volume, so is not suspicious. This is a small cause for concern today for the bearish outlook for both Elliott wave counts. It is a small concern only due to the substantial new low for the day.
ADX is beginning to flatten off. If there is a trend about to develop, it would still be down as the -DX line remains above the +DX line. ADX still does not indicate there has been a trend change, only that there has been a consolidation period. ADX indicates that price is still within the consolidation (ADX is a lagging indicator). If price is still consolidating, then it is bound between roughly 1,950 and 1,870. A breakout below the lower edge of this zone on a day with increased volume would be a classic breakout. At that stage, more confidence in the Elliott wave counts would be reasonable. It is upwards days which have strongest volume during this consolidation. This indicates an upwards breakout would be more likely. This also gives a little cause for concern today.
ATR is beginning to show some increase. This may be the early stages of a trend.
On Balance Volume may still lead the way. OBV found strong resistance at the upper green line and bounced down from there. It is turning back up and should again be expected to find resistance at the green line, which may assist to hold down further upwards movement in price. If OBV breaks above the green line, that would be a fairly strong bullish indication. If OBV breaks below either of the pink or blue lines, that would be a reasonable bearish indication.
The rally has returned RSI from oversold. There is again plenty of room for this market to fall.
Stochastics is returning from overbought. With ADX still not indicating a trend, it should be expected that price will swing from resistance to support and back again, until a trend develops. At this stage, price is returning from resistance and Stochastics is returning from overbought. Price has found support but Stochastics is not yet oversold, so expect price to continue lower to the next line of support and to only stop when Stochastics reaches oversold at the same time.
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.
I am aware that this approach is extremely conservative. Original Dow Theory has already confirmed a major trend change as both the industrials and transportation indexes have made new major lows.
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 @ 11:22 p.m. EST.