A little upwards movement was expected to begin Tuesday’s session, a small correction to be over in less than 11 hours.
So far price has moved higher on a small ranging day and the correction has lasted 9 hours.
Summary: The trend is still down. A very strong third wave is most likely still building. In the short term, this correction looks like it may now be over. Tomorrow may see strong downwards movement. The mid term target for the preferred bear wave count is still 1,428.
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. The target for intermediate wave (3) is changed today. At 1,768 minor wave 5 would reach 1.618 the length of minor wave 1. At 1,769 minute wave v would reach equality in length with minute wave iii. This target would see minor wave 5 move below the end of minor wave 1, so it would avoid a truncation.
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. Within minor wave 5, no second wave correction may move beyond its start above 1,947.2.
Price has now broken below the lower cyan line. It looks like a downwards breakout is underway; the next wave down is unfolding. The lower cyan line may now provide resistance for upwards corrections.
There are two ways to see the downwards movement from the high of minor wave 4. This may be an almost complete impulse as labelled here. It may also be two first and second waves as per the labelling on the hourly bear wave count today.
Both ideas work for this movement for both bull and bear wave counts.
If an impulse is unfolding, then the fourth wave correction is very likely to be over at Tuesday’s high. Any continuation of the fourth wave may not move into first wave price territory above 1,897.29.
There is no Fibonacci ratio between minute waves i and iii. This makes it more likely that minute wave v would exhibit a Fibonacci ratio to either of minute waves i or iii. The most common is equality in length with the first wave, but in this case that would see minor wave 5 truncated. At 1,769 minute wave v would reach equality in length with minute wave iii. This target is just one point off the target at minor degree: at 1,768 minor wave 5 would reach 1.618 the length of minor wave 1. Because calculations for two wave degrees converge on a one point price range this target has a reasonable probability.
Minute wave v may end about the lower edge of the channel.
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.
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), minuette wave (ii) lasted a Fibonacci 8 sessions, and subminuette wave ii lasted just two 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 subminuette wave ii continues any higher, it may not move above the start of subminuette wave i at 1,947.20.
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.
Subminuette waves i and ii may be complete within minuette wave (iii). Alternately, this downwards wave may be an incomplete subminuette wave i. The current correction may be micro wave 4, as per the labelling on the bull hourly chart. Both ideas work for both wave counts.
Subminuette wave ii was a deep 0.60 expanded flat lasting just 11 hours.
The pattern so far within this third wave is typical. Each successive second wave correction is more brief than its predecessor one degree higher.
If this downwards movement is two first and second waves, then micro wave 2 should be over now. It would have lasted 9 hours, two less than subminuette wave ii one degree higher.
Micro wave 2 may not move beyond the start of micro wave 1 above 1,927.35.
At 1,797 subminuette wave iii would reach 2.618 the length of subminuette wave i.
Subminuette wave i lasted one session and subminuette wave ii lasted two sessions. If subminuette wave iii is extended in price, it would also extend in time. A reasonable expectation would be for it to last a total Fibonacci 8 sessions. So far it has lasted 3.
At 1,511 minuette wave (iii) would reach 1.618 the length of minuette wave (i).
Minuette wave (i) lasted 14 sessions, one more than a Fibonacci 13. Minuette wave (ii) lasted a Fibonacci 8 sessions. If minuette wave (iii) is extended in price, it would also be extended in time. A reasonable expectation would be for it to last a total Fibonacci 21 sessions, give or take one or two either side of this number. So far it has lasted 6 sessions.
These expectations regarding time are rough estimates only. The S&P sometimes exhibits waves which have Fibonacci numbers for how many days / sessions they last, but not always.
Click chart to enlarge. Chart courtesy of StockCharts.com.
This section of the analysis is updated at 12:25 a.m. EST 10th February, 2016.
Again, a small green candlestick with a small real body comes with a decline in volume. The volume profile remains overall bearish. The small rise in price today was not supported by volume; this movement looks strongly corrective.
ADX still is indicating there is a downwards trend.
ATR still disagrees as it is flat.
On Balance Volume has breached the short term pink line. The next line to provide support for OBV is very close and has stronger technical significance. If the blue line is breached by OBV, that would be a stronger bearish indicator.
RSI and Stochastics are not yet extreme. There is room yet for price to fall. Both RSI and Stochastics point lower for the session, although Tuesday completed a green candlestick, and this is weak indication that the bears were stronger than the bulls on Tuesday.
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 my modified 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 @ 05:05 p.m. EST.