Upwards movement continued as expected from the last analysis.
Summary: Upwards movement may be over here, or tomorrow may begin with a slight new high to 1,948 – 1,950. Today, it looks like the target at 1,987 was too optimistic and may not be reached. The middle of a big third wave down should begin, but sometimes these begin slowly and test our patience. Look out for surprises to the downside though; the middle is getting closer, and when it arrives it should be explosive. The target remains at 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 – 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 be over, finding resistance at the upper edge of the black channel. It is just within the fourth wave of one lesser degree still, which is a common place for a fourth wave to end.
Intermediate wave (2) was a deep double zigzag. Intermediate wave (4) may be a complete shallow 0.46 zigzag. There is alternation in depth and a little in structure.
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.
Both hourly charts are again mostly the same, so comment will be with the preferred bear wave count. This first hourly chart indicates the correction may be over, but if so the final fifth wave would be very short.
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. So far it has lasted six sessions. It may be over now or tomorrow; it may not total a Fibonacci eight.
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. While the most likely normal target would be the 0.618 Fibonacci ratio at 1,987 (which may still be met), this second wave may be more shallow than normal. The strong downwards pull of a big third wave may force this second wave correction to be a little more brief and shallow than second waves normally are.
So far on the hourly chart it looks like minuette wave (c) may be either a complete five up or an almost complete five up. So far price is sitting in the lower half of the channel which contains this correction. A mid line is added to the channel, which may be useful to show where upward movement, if it continues, may find resistance just below the mid line.
On the five minute chart, there is not yet a compete five up for a fifth wave and not a complete five down to begin a new trend. This indicates that the last wave up for submineutte wave v may unfold tomorrow. Analysis of the five minute chart is not always useful though; to get mired in too much detail sometimes confuses (which is why I don’t publish it anymore).
The channel about minute wave ii will be important tomorrow. When the channel is breached by clear downwards movement (not sideways) that shall be earliest indication that minute wave ii is most likely over. It will not be definitive though because at the end of movements the S&P does not always fit nicely within its channels. Sometimes it forms slow curving tops which breach channels, before the next wave begins.
If the structure of minuette wave (c) is correctly labelled and if the final fifth wave up is yet to unfold, then the 0.618 Fibonacci ratio at 1,987 looks to be too high now. That would require a long extended fifth wave. This is still possible, but the probability of it is low for the S&P. So what is more likely is that subminuette wave v will be shorter than subminuette iii because for the S&P it is most common for its third waves to extend.
At 1,948 minuette wave (c) would reach 0.382 the length of minuette wave (a). At 1,950 subminuette wave v would reach 0.618 the length of subminuete wave i. This gives a 2 point target zone calculated at two wave degrees. It is not essential that this target is met. It is just my judgement that it is most likely based on structure at the five minute chart level.
A new low below 1,902.17 could not be a second wave correction within minuette wave (c), so at that stage minuette wave (c) would have to be over. This would provide first price confirmation of a trend change.
A new low below 1,810.10 on a downwards day with an increase in volume would provide full and final confirmation of a trend change. That would be a classic breakout pattern. At that stage, strong confidence may be had that a third wave down is most likely.
FIRST ALTERNATE DAILY CHART
This wave count is not invalidated but it no longer has the right look. I am making the judgement today that the probability is too low for publication.
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 be over in 6 days, which is not a Fibonacci number.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Two daily green candlesticks on declining volume is bearish. The upwards move in price was not supported by volume. This move looks more like a bear market rally than a new trend. Overall, the volume profile remains almost consistently bearish with the odd small outlier. As price falls, volume has risen. Now, as price rises, volume falls.
ADX indicates the market is consolidating. The +DX and -DX lines have come to touch today. If they cross over tomorrow, that would be a signal of a possible impending trend change. At the end of a correction though this is not necessarily reliable. Last time the +DX line crossed above the -DX line was 29th December, right before the last big downwards movement.
A cross of the DX lines is a possible indication of a trend change, but it still requires the ADX line to confirm a trend before that signal is complete. That is not the case here.
ATR is still declining which supports the idea that this upwards movement is a correction and not a new trend.
On Balance Volume has come up to touch the pink trend line. It may find resistance here, but this line has been breached before. A new green line is added to OBV. If it comes to touch this green line, I would expect it to find final resistance there and turn down. To the downside, if OBV breaks below the blue line, that should indicate more downwards movement in price.
RSI is now above neutral. There is plenty of room for the market to fall again.
Stochastics is overbought. Upwards movement should end here or very soon.
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.
The last day to day divergence from VIX worked well. Price moved higher as expected.
Now there is a longer term (still short, but not day to day) slight divergence with the last two swing highs in price and VIX. Price has not yet made a new high yet VIX (inverted) has made a new high. This indicates weakness in price and is bearish. This may be an indication that the bear market rally is about to end here.
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 @ 10:37 p.m. EST.