A breach of a channel on hourly chart is earliest confirmation of a trend change.
Summary: Earliest indication that the correction may be over came today with a breach of the channel on the hourly chart. This increases the probability that the correction is over. Price confirmation that the correction is over is still required with a new low below 1,962.96. Upwards movement may continue while price remains above this point. A low below 1,962.96 by any amount at any time frame would indicate a strong third wave down is most likely beginning.
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) may now be over. 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.
Draw the channel about primary wave C using Elliott’s second technique. Draw the first trend line from the ends of intermediate waves (1) to (4), then a parallel copy on the end of intermediate wave (3). Expect intermediate wave (5) to find support at the lower edge. Intermediate wave (5) is highly likely to end slightly below 1,810.1.
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.
Comment on structure will be with the bear wave count today.
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 fifteen sessions, four longer than minor wave 2. At this stage, the size of minute wave ii no longer gives the wave count the right look, so for this reason the alternate below is published. The S&P does not always exhibit perfect proportions, so this wave count remains entirely valid. The overall look is not too far from perfect to be somewhat acceptable for this market in my experience.
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 channel is breached on the hourly chart today. Some confidence may be had today that the rally is very likely over.
There are two ways to see this upwards movement: as a double zigzag as shown here or as a single zigzag as shown for the alternate below. Both ways to label it work in the same way for this and the alternate wave count below.
If upwards movement is a double zigzag, then the structure again looks complete.
Within the first zigzag of the double, subminuette wave c is just 2.18 points short of 0.382 the length of subminuette wave a.
Within the second zigzag of the double, subminuette wave c is now 5.36 points longer than equality in length with subminuette wave a.
There is alternation between the two zigzags: the first zigzag has a long A wave and a short C wave, while the second zigzag has A and C waves close to equality.
Earliest confirmation of a trend change has come today with a clear breach of the channel on the hourly chart, followed by a typical looking throwback to the lower edge. However, the S&P does not always fit neatly into channels as it nears the end of a trend. It tends to form rounding tops, breaching a channel before continuing further.
First price confirmation of a trend change would come with a new low below 1,974.08. At that stage, micro wave 5 within subminuette wave c would have to be over because downwards movement could not be a second wave correction within it, so micro wave 5 could not extend.
Strong price confirmation of a trend change would come with a new low below 1,962.96 which would invalidate the alternate below.
So far downwards movement subdivides best as a series of three first and second waves. This may be only within minuette wave (i). On the way down, look for price to find support at each of the two cyan trend lines which are copied over here from the daily chart. After each line is breached then look for price to throwback to the line for resistance. If price behaves like that, it may offer low risk entry opportunities to join the trend; stops may be set just above each line as it is breached.
ALTERNATE DAILY CHART
If intermediate wave (2) ends on 2nd December, 2015, then it will only fit as a zigzag with a truncated C wave. I have tried to see other ways of labelling this movement with the same end and so far I cannot find a better solution. The truncation is large at 12.19 points which gives this wave count a very low probability. But this now resolves the problem the main wave count has of proportion.
Intermediate wave (2) for this wave count is 45 days in duration. Minor wave 2 is now seventeen days in duration, so the proportions look good. It is also possible that minor wave 2 is a completed double zigzag lasting fifteen days as per labelling for this bounce with the main bear daily chart.
Minor wave 2 may not move beyond the start of minor wave 1 above 2,104.27.
This alternate makes a difference to the target. At 1,416 intermediate wave (3) would reach 2.618 the length of intermediate wave (1).
Upwards movement may be an incomplete single zigzag. At 2,086 minute wave c would reach 1.618 the length of minute wave a.
Minute wave b is seen as an expanded flat correction.
The channel is drawn in the same way, so it should be used in the same way for earliest indication of a trend change.
Minuette wave (iv) has breached the channel. This has substantially reduced the probability of this wave count today. The subdivisions within it do not at all fit well on the five minute chart. If subminuette wave c is an ending expanding diagonal, then micro waves 1 and 3 within it should subdivide as zigzags but on the five minute chart they look very much like impulses. This wave count now has a low probability, but it is still presented as a what if? What if I’m wrong? What if the bounce will continue. At what point will price eliminate that possibility?
A new low below 1,962.96 would invalidate this wave count. At that stage, downwards movement could not be minuette wave (iv) because minuette wave (iv) may not move into minuette wave (i) price territory.
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.
The downwards day for Tuesday shows an increase in volume beyond the prior upwards day for NYSE data. There was some support for the fall in price.
Tuesday’s red candlestick completes a bearish engulfing candlestick pattern; although the candlestick does not engulf the prior real body, it is below. Price gapped lower and closed much lower. This candlestick pattern is very bearish indeed. The major criteria for a bearish engulfing candlestick pattern is that the close of the second day is below the open of the first day. In this case both the open and close of the second day are below the open of the first day.
NYSE volume data shows declining volume for rising price during this rally, and increasing volume on falling price during this rally. The short term volume profile for this rally is bearish.
ADX is flat indicating no clear trend. ATR continues to clearly decline, more typical of a correction than a trend. With both of these indicators in agreement, there may be some confidence that the upwards bounce is a correction against a trend and not the start of a new bullish trend.
On Balance Volume has turned back below the pink line. If tomorrow OBV moves lower, that would be a strong bearish signal. The strength of that line would be reinforced. The pink trend line is already highly technically significant.
The next line for price to find resistance is at 2,020 and the 200 day moving average.
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 @ 09:23 p.m. EST.