Yesterday expected to see short term sideways / downwards movement for the hourly charts.
This is what happened.
Summary: The bear market rally still looks to be incomplete. Price may move a little lower tomorrow to find support at the lower cyan trend line. However, small divergence with VIX today suggests that the downwards movement seen today is over already. Thereafter, more upwards movement to 1,987 is expected.
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.
It may be more shallow than the 0.382 ratio, if price finds support at the lower cyan trend line on the daily chart.
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 4.
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 continue lower tomorrow. Minuette wave (b) may not move beyond its start below 1,810.10.
Minuette wave (b) may 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.
FIRST ALTERNATE DAILY CHART
This was the main bear wave count up until yesterday. With 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, 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. 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 strong upwards movement on increasing volume, and now a small downwards day on lighter volume, is bullish short term. It is only short term because the volume for upwards days is still less than volume for prior downwards days to the last low.
In the short term, volume suggests strongly that price is likely to continue higher. This outlook would only change if a strong downwards day with strong volume is seen.
ADX is declining indicating the market is not trending. Importantly, ADX has not yet indicated a trend change: the -DX line remains above the +DX line. While that is the case, it should be expected that this upwards movement is a correction against the main trend which remains down.
ATR is now also declining. This is clearer; the market is most likely not trending.
On Balance Volume has come down to touch the pink trend line. This line is reasonably shallow and repeatedly tested, but it is not very long held. It has reasonable technical significance, so it may offer some support. A break below this line would be only a weak bearish signal. The line may be overshot and OBV may turn up and move yet higher. The cyan trend line on price should be more reliable in this instance than this pink line on OBV.
RSI is neutral. There is plenty of room for price to move up or down.
Stochastics is not yet overbought. When it is and if it shows divergence with price, then it would indicate an end to upwards movement. It is not doing that yet.
Click chart to enlarge. Chart courtesy of StockCharts.com.
I have found slight divergence between price and VIX from one day to the next a reasonably reliable indicator of an end to a movement.
Price moved lower today to complete a red candlestick, but VIX has moved higher (inverted). If the pattern observed previously with these small divergences persists here, then it indicates an end to downwards movement and price may move higher tomorrow. The Elliott wave expectation of more downwards movement for a small B wave tomorrow may not be realised.
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 @ 08:26 p.m. EST.