Again, downwards movement was expected.
Price moved lower to make a lower low and a lower high. This fits the wave count.
Summary: Upwards movement is still most likely over. A break now below the lower cyan trend line and below 1,891 would add substantial confidence. If price moves higher above 1,946.7 tomorrow, then the target for upwards movement to end would be again 1,987. What is more likely is a big third wave down is 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) 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.
At 1,790 intermediate wave (5) would reach 1.618 the length of intermediate wave (1). This would see intermediate wave (5) move below the end of intermediate wave (3) at 1,847 avoiding a truncation. Primary wave C would end below the end of primary wave A but not too far. Cycle wave IV would have a reasonable regular flat look.
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 the same, so comment will be with the preferred bear wave count.
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). Minute wave ii may be complete in six sessions, which is not a Fibonacci number.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
A new low below 1,902.17 could not be a second wave correction within minuette wave (c), so minuette wave (c) must now be over. A zigzag upwards is complete. This is most likely minute wave ii in its entirety.
The downwards wave labelled subminuette wave i fits best as a five wave impulse with a strong fifth wave. Upwards movement to end Wednesday’s session will subdivide either as a five or a three on the five minute chart.
At 1,653 minute wave iii would reach equality in length with minute wave i. This is a reasonable target, and it would expect both minute waves i and iii to be extended within the impulse of minor wave 3.
If price gets to the first target and the structure is incomplete, or if price just keeps dropping through the first target, then the next target is at 1,470 where minute wave iii would reach 1.618 the length of minute wave i.
Downwards movement for Wednesday’s session found support at the lower cyan trend line. The following rally found resistance and ended about the upper cyan trend line. If the lower cyan line is breached tomorrow by downwards movement, then it should thereafter provide resistance. If price throws back to that line, it may offer an entry point to join the downwards trend.
Subminuette wave ii is very deep at 0.74 of subminuette wave i. Second wave corrections can be and often are very deep. However, this one is a small degree second wave within a big third wave. I would have expected it to be more shallow than this. For this reason (and reasons given in the technical analysis section) the alternate below is considered.
At the last high of minuette wave (c), there was divergence between price and MACD: as price made a new high MACD failed to make a corresponding high. This indicates there was weakness in price and supports this main hourly wave count.
ALTERNATE HOURLY CHART
At this stage, the only structure which fits for minute wave ii to continue higher is a double zigzag.
If minute wave ii continues higher as a double zigzag, then it may end about the 0.618 Fibonacci ratio of minute wave i at 1,987.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
Upwards movement would have to break through resistance at the upper cyan trend line. If it manages to do that, then look for support at that line for a throw back.
If minute wave ii continues higher, then it may end in a further five sessions, at about 1,987, if it totals a Fibonacci thirteen daily candlesticks.
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.
Today’s candlestick is giving mixed signals. Overall, the candlestick is green with a long lower shadow, which is bullish. It comes with an increase in volume, which is also bullish. It came with an increase in breadth (the Advance / Decline line increased today, not shown), which is bullish too.
But price is the final determinator.
Today’s candlestick gave a lower low and a lower high. This is bearish.
The ADX line continues to decline indicating the market is not yet trending (ADX is a lagging indicator). Today, ATR begins to disagree as it is increasing. This may be an early indication of the resumption of a downwards trend.
The -DX line remains above the +DX line; the -DX turned higher today. This is bearish. If the trend returns at this stage it would still be down.
On Balance Volume has still not given any early indication of price direction. It remains bound within the pink, green and dark blue lines. A break above the pink line would be bullish and a break below the dark blue line would be bearish.
There is no divergence with price and RSI. RSI is just above neutral. There is plenty of room for the market to rise or fall.
There remains some divergence with price and Stochastics: as price made the last swing high, Stochastics failed to make a corresponding high. This indicates weakness in price and is bearish.
With classic technical analysis giving a mixed picture today, it may be wise to wait until the lower cyan line and 1,891 is breached before having confidence in the main hourly bear Elliott wave count.
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 @ 10:04 p.m. EST.