Upwards movement for Friday was expected.
Summary: The trend is down. This upwards movement is a correction against the trend. In the short term, a Dead Cat Bounce may end in another two or four days (most likely – but this is not definitive) and should find very strong resistance at the lower cyan trend line on the daily charts. Look out for surprises to the downside; the middle of a big third wave is still very likely 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 – 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. This first daily chart looks at a flat correction.
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.
Within the new downwards wave of primary wave C, intermediate waves (1), (2) and now (3) may be complete. Intermediate wave (4) would probably find resistance at the lower cyan trend line. This would see it end within the price territory of the fourth wave of one lesser degree.
Intermediate wave (2) was a deep double zigzag. Intermediate wave (4) may exhibit alternation, so it may be shallow. It would most likely be a flat, combination or triangle.
The idea of a flat correction for cycle wave IV has the best look for the bull wave count. The structure would be nearly complete and at the monthly level cycle wave IV would be relatively in proportion to cycle wave II.
Intermediate wave (3) is likely now to be over for the bull wave count. If intermediate wave (4) has begun, then within it no second wave correction may move beyond the start of its first wave. A new wave at intermediate degree should begin with a clear five up at the hourly chart level.
So far the first five up looks to be incomplete. Whether this be a first wave or an A wave the following correction may not move below its start at 1,810.10.
DAILY CHART – COMBINATION
This idea is technically possible, but it does not have the right look. It is presented only to consider all possibilities.
If cycle wave IV is a combination, then the first structure may have been a flat correction. But within primary wave W, the type of flat is a regular flat because intermediate wave (B) is less than 105% of intermediate wave (A). Regular flats are sideways movements. Their C waves normally are about even in length with their A waves and normally end only a little beyond the end of the A wave. This possible regular flat has a C wave which ends well beyond the end of the A wave, which gives this possible flat correction a very atypical look.
If cycle wave IV is a combination, then the first structure must be seen as a flat, despite its problems. The second structure of primary wave Y can only be seen as a zigzag because it does not meet the rules for a flat correction.
If cycle wave IV is a combination, then it would be complete. The combination would be a flat – X – zigzag.
Within the new bull market of cycle wave V, no second wave correction may move beyond the start of its first wave below 1,810.10.
I do not have any confidence in this wave count. It should only be used if price confirms it by invalidating all other options above 2,104.27.
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. Each successive second wave correction of a lower degree has a shorter duration which gives the wave count the right look, so far.
Within minuette wave (iii), no second wave correction may move beyond the start of its first wave above 1,947.20.
This first idea for the bear count at the daily chart level expects to see a very strong increase in downwards momentum as the middle of a big third wave unfolds. This first idea (of three) has the highest probability because it expects that within intermediate wave (3) the middle of the third wave will be the longest extension, which is the most common pattern for the S&P.
Third waves are most often extended for the S&P. They often feel like they begin slowly as a series of first and second waves unfold. The middle accelerates and they often end with strong movement and a spike. There is a good example on this daily chart: minor wave 3 within intermediate wave (1) began slowly (many members were concerned the wave count was wrong) and then had strong acceleration at its middle and then ended strongly.
There will be just one hourly wave count for the bear today. The hourly bear alternate presented in last analysis is still technically possible but the probability is too low for serious consideration.
If submineutte wave ii corrects up to the 0.618 Fibonacci ratio of submineutte wave i at 1,895, then it may find resistance at the lower cyan line which is copied over from the daily chart. Draw this line from the lows of October 2014 to August 2015.
Minuette wave (ii) lasted a Fibonacci eight days. Subminuette wave ii should be quicker. The expectation is of a Fibonacci three or five days, with five more likely.
The target for minuette wave (iii) remains the same. At 1,511 it would reach 1.618 the length of minuette wave (i).
When subminuette wave ii is complete, then a target may again be calculated for subminuette wave iii to end. At this stage, with subminuette wave ii still unfolding, it cannot be known where subminuette wave iii begins and a target for it cannot be calculated.
At this stage, it looks like subminuette wave ii may be unfolding as a zigzag. Within subminuette wave ii, micro wave A looks like a five wave structure on the hourly chart. Micro wave B may not move beyond the start of micro wave A below 1,810.10. The invalidation point is not noted on the chart because this correction may possibly come to a swifter end than expected. Still expect surprises for this market to be to the downside because with the middle of a big third wave approaching it may force corrections to be swift and shallow.
FIRST ALTERNATE DAILY CHART
It is time to separate out the different possibilities for the bear wave count for clarity.
Within minor wave 3, it is possible that minute wave i was extended and is now a complete five wave impulse.
This wave count sees three first and second waves within an impulse unfolding downwards: intermediate waves (1) and (2), minor waves 1 and 2, and now minute wave i. Minute wave ii should be more brief than minor wave 2 which lasted 11 days. Minute wave ii may be expected to last a Fibonacci 3, 5 or 8 days. If it finds resistance at the lower cyan trend line, then it may only last 3 days. It if lasts longer and is deeper, maybe ending at the 0.382 Fibonacci ratio at 1,917, then it may last a Fibonacci 5 days.
Minute wave ii would be very likely to end at either of the cyan trend lines.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27. However, it should not get anywhere near that point and it should not last much longer if any than 11 days.
This first alternate bear wave count has a lower probability than the main bear wave count. It is less likely that a first wave would be this extended.
SECOND ALTERNATE DAILY CHART
I have previously noted this idea in the text and now it is time to chart it, so that the implications are clear.
Within the downwards impulse unfolding, it may be that intermediate waves (1) and (2) are complete and now minor waves 1, 2 and 3 may also be complete within intermediate wave (3).
This wave count expects minor wave 5 to be extended within intermediate wave (3). Minor wave 5 should also show a strong increase in momentum, so that at its end intermediate wave (3) has clearly stronger momentum than intermediate wave (1).
There is no difference to the target for intermediate wave (3). This wave count makes a difference to the invalidation point. Minor wave 4 may not move into minor wave 1 price territory above 2,053.21.
This wave count also has a lower probability than the main bear wave count. It is possible that a fifth wave is the strongest extension within a third wave impulse, but this is less common for the S&P than the third wave being the strongest extension. This wave count would be more typical of commodities than the S&P.
Minor wave 2 lasted 11 days. Minor wave 4 may last a Fibonacci 8 or 13 days, so that the proportion between these two corrections is similar and the wave count has the right look.
Minor wave 4 would most likely be shallow and would be very likely to find strong resistance at one of the cyan trend lines.
Click chart to enlarge. Chart courtesy of StockCharts.com.
This week the S&P made a new low below the prior swing low of 1,812.29 on 20th January. Overall, the pattern of lower highs and lower lows continues. As price declines, volume increases; as price rises, volume declines. The volume profile remains almost completely bearish. This supports the bear Elliott wave count.
Again, as price moved higher for Friday, it came with lighter volume. The rise in price was not supported by volume and is suspicious. This upwards movement is extremely likely to be a correction against the trend, so it is extremely likely to be fully retraced.
The next horizontal trend line to offer resistance is about 1,880.
ADX is beginning to turn upwards indicating the market may again be trending. The trend is down.
ATR still disagrees as it is flat. This is more normal for a consolidating than trending market.
On Balance Volume slightly breached the cyan trend line as it was drawn in last analysis and then turned back up through that line. The cyan trend line is redrawn to better show where OBV found support at the last turn. This line is long held and repeatedly tested, but not very shallow. It offers reasonable technical significance.
The pink line on OBV is also redrawn. This line is reasonably shallow and repeatedly tested, and it too offers reasonable technical significance. This line may assist to show when upwards movement in price comes to end. If OBV touches this pink line and if price is at a resistance line at the same time, that may be when this correction is over.
RSI is returning to neutral. If price continues higher next week, it may return RSI closer to neutral and then allow plenty of room for the market to make its next fall.
I have switched to slow Stochastics. Stochastics is returning from oversold. This may too allow room for the market to fall again.
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 @ 06:57 p.m. EST on 13th February, 2016.