Downwards movement was expected but did not happen.
The alternate bear Elliott wave count is now switched to the preferred Elliott wave count.
Summary: The outlook must change today after three days of upwards movement on increasing volume. Volume is still light, and this movement is still expected to be a bear market rally. The target is now about 1,987 which may be met in another five trading sessions / days.
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) may now find resistance at the upper 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.
The first five up may now be complete. Minor wave B may correct to about 0.382 or 0.618 the length of minor wave A. It may not move below the start of minor wave A 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) and minor wave 2 lasted 11 sessions (no Fibonacci number). If current upwards movement is a correction for minute wave ii, then it is likely to be more brief than minor wave 2 one degree higher. A Fibonacci 8 sessions would be most likely. So far it has lasted 3.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
The most likely structure for minute wave ii is a zigzag, and the most likely target for it is the 0.618 Fibonacci ratio of minute wave i at 1,987.
Minuette wave ii is most likely to subdivide as a zigzag and most likely to end about the 0.618 Fibonacci ratio of minute wave i at 1,987.
Within the zigzag, minuette wave (b) should move lower. It may show on the daily chart as a red candlestick or a doji. If this analysis is correct in seeing minuette wave (a) as a five wave structure, then minuette wave (b) may not move beyond its start below 1,810.10.
Minuette wave (a) may end here about the upper cyan trend line.
Minuette wave (b) may move lower and find support at the lower cyan trend line.
When minuette wave (b) is complete, then a channel may be drawn about this correction. Minuette wave (c) upwards may end at the upper edge. When the channel is breached by subsequent downwards movement, that should indicate an end to the correction of minute wave ii. The channel cannot be drawn yet.
The narrow orange channel is drawn about minuette wave (a) only. At the end of Wednesday’s session, it looks like the orange channel is beginning to be breached. When that breach is clearer, then it should indicate minuette wave (b) is unfolding.
FIRST ALTERNATE DAILY CHART
This was the main bear wave count up until today. With the last three days of upwards movement, price is no longer behaving as expected for this wave count, so it has reduced in probability.
It is still technically possible, but less likely today, that the middle of the third wave of intermediate wave (3) is imminent. Subminuette wave ii may not move beyond the start of subminuete wave i above 1,947.2.
Price absolutely must find resistance at the upper cyan line. This second wave correction should end here.
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 2,019.39.
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.
Three days of upwards movement on slightly increasing volume is bullish for the short term. Volume for these upwards days remains lighter than prior downwards days, so this bullishness is short term only.
Price may find resistance at the next horizontal purple line just above 1,950. The next resistance line would be about 1,990.
ADX is declining indicating the market is not trending; it is consolidating. ADX has not yet indicated a trend change; the -DX line remains above the +DX line.
ATR is still flat indicating the market is not trending; it is consolidating.
On Balance Volume has breached the point line. The next line for resistance that I can find for OBV is some distance away, which allows reasonable room for price to move further upwards before OBV may help to stop the rise.
Stochastics is not yet overbought. RSI is close to neutral. There is room for more upwards movement in price.
There is slight bearish divergence between RSI and price: from the high of 1st February price has not yet made a higher high but RSI has made a higher high. This indicates some weakness in price. This divergence is a weak signal only though. It is not always reliable.
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 @ 09:23 p.m. EST.