The bounce continued higher towards the target as expected.
Summary: The bounce is continuing higher as a double or single zigzag. The target for it to end is 2,002 or 2,004. Confirmation the correction is over will first come with a clear breach of the channel containing it, and thereafter a new low below 1,931.88. The preferred wave count expects the next wave down to be very strong.
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) is continuing higher and may not yet be complete. Intermediate wave (2) will subdivide either as a single or double zigzag (as will intermediate wave (4) ). There is inadequate alternation between these two corrections, which reduces the probability that the current correction is a fourth wave.
When intermediate wave (4) may again be seen as complete, then a target may be calculated for intermediate wave (5) to end. It should move at least slightly below the end of intermediate wave (3) at 1,810.10 to avoid a truncation.
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.
Again, there are two different ways to see this upwards movement. I will use the hourly bull and hourly bear charts to show both ways, and both ways work the same for both bull and bear wave counts (the degree of labelling is two higher for this bull wave count).
Upwards movement may be an almost complete single zigzag.
Within the zigzag, minor wave A subdivides as a five. Minor wave B subdivides as a three, an expanded flat correction.
Minor wave C is an almost complete five wave structure. Within minor wave C, minute wave ii is a zigzag and minute wave iv exhibits alternation as a triangle which fits perfectly on the five minute chart. This is a barrier triangle, which are often followed by short fifth waves.
Within minor wave C, minute wave iii is shorter than minute wave i. This limits minute wave v to no longer than equality in length with minute wave iii, so that the third wave is not the shortest and the core Elliott wave rule is met. The limit for minute wave v for this wave count would be at 2,020.62. This is above the invalidation point for the bull wave count, but not for the bear.
Within minor wave C, minute wave iii is just 2.07 points longer than 0.618 the length of minute wave i. At 2,002 minute wave v would reach 0.618 the length of minute wave iii.
On the five minute chart, there is a lot of overlapping within minute wave v. This indicates some more upwards movement as likely to resolve the structure of minute wave v as a five wave impulse.
If minute wave iv continues further, it may not move into minute wave i price territory below 1,962.96.
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 (not a Fibonacci number) and minor wave 2 lasted 11 sessions (not a Fibonacci number).
Minute wave ii has now lasted thirteen sessions, two longer than minor wave 2. This still allows the wave count to have the right look even though it is not longer perfect.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
The first idea outlined on the hourly bull chart also works in the same way for this bear wave count, and vice versa.
At 2,004 subminuette wave c within the second zigzag would reach equality in length with subminuette wave a.
Within subminuette wave c, no second wave correction may move beyond the start of its first wave below 1,931.88.
When the trend channel about this correction is clearly breached by at least one full hourly candlestick below and not touching the lower trend line, that shall indicate the correction may be over. A new low below 1,931.88 could not be a second wave correction within subminuette wave c, so at that stage subminuette wave c would have to be over. A new low below 1,931.88 would provide price confirmation of a trend change.
At that stage, the only way that the correction could continue would be a very rare triple zigzag. The rarity of triples (I have only ever seen three) means the probability of more upwards movement at that stage would be very low indeed.
Within subminuette wave c, the final fifth wave of micro wave 5 looks incomplete. On the five minute chart, there is too much overlapping at this stage for it to look complete, so more upwards movement is likely to resolve the overlapping into an impulse.
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 eleven days. So far minor wave 4 has lasted thirteen days and it may be incomplete.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume data for today on StockCharts is suspicious. This volume is not the same as that given from NYSE, the home of this index. Therefore, I will go with source data from NYSE. I will check volume data from NYSE daily from here on.
Price has moved to new highs on declining volume for two days in a row now. The rise in price is not supported by volume. Each time we see this a bear market rally is in progress and not the start of a new bull market. This supports the Elliott wave count. It does not tell us that the rally must end here and now, but it does tell us the rally is weakening and should end.
Overall, from the start of this rally to today, volume is declining.
The next line for resistance is about 1,990. 2,000 should also offer some resistance as a very round number.
ADX still indicates the market is not trending; it is consolidating. If a new trend resumes here it would be upwards: the +DX line is now above the -DX line.
ATR is still overall in agreement. It is flat to declining overall. This indicates the market is consolidating.
On Balance Volume is breaking above the green trend line, which is not serving to hold price down as expected. The next line to offer resistance has more technical significance. The brown line is longer held and should offer stronger resistance. A new pink line is drawn which is also long held, tested more often, and almost horizontal. This line offers the strongest technical significance. If OBV comes up to touch that line, it should bounce down from there.
This bounce has returned RSI to above neutral allowing plenty of room for price to fall. There is no divergence with RSI and price.
The slight weak divergence with price and Stochastics disappeared. This is why I don’t give much weight to Stochastics divergence unless it is large and obvious. Stochastics is overbought, so so upwards movement may be expected to end soon.
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 @ 08:45 p.m. EST.