Upwards movement with lighter volume to complete a small green doji is weak.
Targets and expectations remain the same.
Summary: Price should move a little higher to complete a small correction when markets open tomorrow. Third waves often start out slowly with a series of second wave corrections before the middle arrives. It is most likely that price will not move above 1,947.2 tomorrow, but there is a small possibility it could. Price should continue to find resistance at the cyan line on the daily chart. The trend is down and the strongest part of a middle of a third wave is approaching, so look out for surprises to be to the downside.
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.
I have two hourly charts for you today, and both work in the same way for bull and bear.
MAIN HOURLY CHART
If minuette wave (ii) is over, it would most likely be as a double zigzag. This has a neat fit.
The downwards wave labelled subminuette wave i will fit as a five wave impulse on the five minute chart, but there it suffers from a problem of proportion with the second and fourth wave corrections within it. This gives it a bit of a three wave look at the hourly chart level.
Upwards movement for Thursday’s session fits now as a completed five, so the next second wave correction would be incomplete.
Subminuette wave ii is finding resistance at the lower edge of the channel for minuette wave (ii). It may continue to do so. It looks like it is unfolding as a zigzag; micro wave B looks like an almost complete triangle. Micro wave C upwards may unfold at the start of tomorrow’s session, and it is likely to move above the end of micro wave A at 1,927.35 to avoid a truncation.
At 1,511 minuette wave (iii) would reach 1.618 the length of minuette wave (i). If this target is wrong, it may not be low enough. The next Fibonacci ratio in the sequence is 2.618 which would give a target at 1,242, but that looks too low.
The small channel about subminuette wave ii should be redrawn, if micro wave B continues further. When micro wave C has moved higher, then a subsequent breach of this violet channel would provide trend channel confirmation that subminuette wave ii should be over and the third wave down should continue.
Subminuette wave ii may not move beyond the start of submineutte wave i above 1,947.2.
ALTERNATE HOURLY CHART
What if my labelling of minuette wave (ii) is wrong? What else could it be?
Upwards movement to the last high will not subdivide as an impulse. I cannot find a solution where that fits. It will subdivide as a single zigzag, if a small truncation of 1.94 points for submicro wave (5) to end micro wave A is accepted.
The downwards wave labelled subminuette wave x may now be seen as a three which does have a better look.
The biggest problem with this idea and the reason it is an alternate (so far) is the second zigzag in the double would not be deepening the correction very much (so far). Second and third zigzags exist to deepen a correction when the first (and second) zigzag does not move price deep enough. If the cyan trend line continues to offer strong resistance, then subminuette wave y would not be able to deepen the correction much and this structure would not have a typical double zigzag look. The second zigzag would not achieve its purpose.
The other less important problem with this idea is it would see minuette wave (ii) last longer than minute wave ii one degree higher. The main hourly wave count has better proportions for the second wave corrections.
This idea is technically possible, even though it has a low probability. Low probability does not mean no probability. If price makes a new high above 1,947.2, then it could continue much higher. The cyan trend line would have to be clearly breached. If that happens, then minuette wave (ii) may continue to be a deeper correction.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Two green candlesticks with small real bodies, and today with declining volume, is not a convincing new bull market. The trend remains down. This is a correction against the trend.
The multi day upwards correction is enough to resolve the daily and weekly hammer candlestick pattern at the last low of 20th January.
The evening doji star pattern at the last swing high comes after a short term upwards trend. This is not a strong reversal pattern, but it is a reversal pattern.
ADX is declining indicating there is no clear trend. It still does not indicate a trend change, the -DX line remains above the +DX line. The trend would still be down if it resumes here.
ATR is flat indicating the market is still consolidating.
On Balanace Volume is of concern today because it has slightly breached the green trend line. This line has only been tested three times though, although it is reasonably long held.
I added the brown line in trying to find a more reliable trend line for OBV. This line is more shallow and more often tested. If OBV breaches that line, it would be a stronger bullish signal. If OBV finds resistance at that line, it would be a bearish confirmation and the strength of the line would be further reinforced.
RSI is neutral. There is plenty of room for the market to rise or fall.
Stochastics is returning from overbought. With ADX indicating a consolidation market, expect price to move lower and to continue until price finds support and Stochastics reaches oversold at the same time.
Click chart to enlarge. Chart courtesy of StockCharts.com.
As price made a new high today, VIX turned downwards (inverted).
I have noticed that this very short term divergence between price and inverted VIX is often (not always) a fairly reliable indicator of the end of a price swing. This supports the idea of lower prices tomorrow.
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 @ 11:43 p.m. EST.