Downwards movement was expected from the main Elliott wave count.
Summary: Earliest confirmation that the correction is over has come with a clear breach of the channel containing it and now a new low below 1,974.08. Final price confirmation would come with a new low below 1,962.96. The probability that a big third wave down is unfolding has increased today.
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.
The channel about minute wave ii has been breached now by two full daily candlesticks below and not touching the lower trend line. Upwards movement for Thursday looks again like another typical throwback to the lower trend line, this time stronger.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
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.
Subminuette wave i fits as a leading contracting diagonal on the five minute chart. Subminuette wave ii fits as a running flat; micro wave B is 1.25 times the length of micro wave A at its end. With micro wave A ending at 2,005.29 and micro wave C ending at 2,005.08, micro wave C is slightly truncated. This reduces the probability that this labelling is correct. With a strong third wave approaching, this is the type of situation a running flat may appear in.
Draw a trend line from the start of subminuette wave i to the end of subminuette wave ii. This lilac trend line should provide resistance to further upwards corrections.
At 1,533 minute wave iii would reach 1.618 the length of minute wave i.
A new low below 1,962.96 would add substantial confidence to this wave count.
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 nineteen 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.
The idea presented with the first hourly bear chart also works in exactly the same way for this alternate. Upwards movement may also be a complete double zigzag.
Minuette wave (iv) may now fit as a double combination: zigzag – X – expanded flat. While double combinations are very common structures this one does not have a typical look. It has a downwards slope and not sideways.
Minuette wave (iv) may not move into minuette wav (i) price territory below 1,962.96.
The breach of the trend channel is now substantial. This must reduce the probability of this wave count. It does not eliminate it though, fourth waves are not always contained within channels. However, the fourth wave within a zigzag should be.
The throwback to the trend line is of concern. If this wave count is correct, that line should not be providing resistance.
The S&P does not always fit nicely within trend channels. When it forms slow rounding tops, it breaches channels and then makes a new price extreme as the trend continues. For this reason, this alternate will continue to be published until price invalidates it.
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 red daily candlestick for Thursday comes with an increase in volume. There was some support for the fall in price. Looking at 30 minute candlesticks from NYSE with volume, it appears that volume for downwards movement is stronger than upwards. This would support the fall in price and the bear Elliott wave count.
The doji comes in a slightly overbought market. This indicates the market is tired. A long legged doji as this is represents a confused market that is separating from its trend. This long legged doji is bearish, even though it is not appearing at the recent high.
ADX still indicates the market is consolidating, not trending. It is a lagging indicator. ATR is beginning to turn up today. This may be an early indication that the market may be beginning a new trend.
On Balance Volume has broken above the pink trend line today. This line is highly technically significant, so this is a strong bullish signal. This does not support the Elliott wave count.
RSI shows no divergence with price. Stochastics has yet to fully return from overbought, so it would expect at least a little more downwards movement from 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 @ 011:40 p.m. EST.