Price moved higher as expected, closer to the target.
Summary: The bounce is continuing higher as a double or single zigzag. The target for it to end is 2,002 or 2,004. At this stage, earliest confirmation that the bounce is over would come with a new low below 1,974.08. Next confirmation would come with a breach of the channel on the hourly chart. Reasonable confidence may be had finally with a new low below 1,931.81.
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
To see all movement from the all time high without squashing the daily candlesticks up too much, it is time to publish weekly charts regularly.
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.
DAILY CHART – FLAT
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, today’s upwards movement resolved the overlapping within minute wave v. The structure may be complete here or very close indeed.
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 fourteen sessions, three 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.
A small channel is added to this bear market rally on the daily chart. This channel needs to be breached before confidence may be had that the rally is over.
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, I have some confidence that micro wave 4 was a barrier triangle. This fits perfectly on the five minute chart. Fourth wave barrier triangles are followed by either very short brief fifth waves or long extended fifth waves. On the five minute chart, the structure for micro wave 5 may now be seen as complete. Upwards movement for today’s session resolved the overlapping at its start.
Within micro wave 5, no second wave correction may move beyond its start below 1,974.08. This short term invalidation point becomes a confirmation point. A new low below 1,974.08 could not be a second wave correction within micro wave 5, so at that stage micro wave 5 would have to be over. At that stage, the probability that the bear market rally is over increases.
A clear breach of the green channel on this hourly chart and also now on the daily chart is required for trend channel confirmation of an end to this rally.
Thereafter, a new low below 1,931.81 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 1,931.81 would provide substantial confidence that the rally is over.
MACD still shows divergence with price which is not persistent. MACD was flat while price moved slowly higher today. This upwards movement is very weak.
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 fourteen days and it may be incomplete.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume data on StockCharts is different to that given from NYSE, the home of this index. Comments on volume will be based on NYSE volume data when it differs from StockCharts.
Price has moved higher for three days in a row on declining volume. The rise in price is not supported by volume.
ADX is still declining despite this rally now lasting thirteen days, almost as long as the average 14 on which ADX is based. ATR agrees with ADX, both are declining. This indicates the market is not trending but consolidating.
On Balance Volume has turned up to touch its brown trend line. This line is long held and reasonably shallow, and it should offer reasonable resistance. If OBV breaks above this line, then the next pink line should offer very strong resistance. This line is almost horizontal and repeatedly tested. That should stop the rally, if it continues for days.
RSI is comfortably above neutral allowing the market plenty of room to fall.
Stochastics remains overbought. A downwards swing would still be expected about there for a range bound approach.
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 @ 06:47 p.m. EST.