Upwards movement was expected.
Price made a slight new high.
Summary: The short / mid term trend remains up while price remains above 1,969.25. The target is 2,086 – 2,088. When the next impulse is over, then how low the following wave down goes will indicate which of three wave counts is correct. However, the bounce is weakening. Look out for surprises to the downside. The first presented bear wave count expects a big third wave is approaching; when it arrives, it may be explosive.
To see last published monthly charts click here.
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.
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
This wave count is bullish at Super Cycle degree.
If it continues any further, 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 may be a complete shallow 0.19 regular flat correction, exhibiting some alternation with cycle wave II.
At 2,500 cycle wave V would reach equality in length with cycle wave I.
Price remains below the final bear market trend line. This line is drawn from the all time high at 2,134.72 to the swing high labelled primary wave B at 2,116.48 on November 2015. This line is drawn using the approach outlined by Magee in the classic “Technical Analysis of Stock Trends”. To use it correctly we should assume that a bear market remains intact until this line is breached by a close of 3% or more of market value. In practice, that price point would be a new all time high which would invalidate any bear wave count.
This wave count requires price confirmation with a new all time high above 2,134.72.
While price has not made a new high, while it remains below the final bear market trend line and while technical indicators point to weakness in upwards movement, this very bullish wave count comes with a strong caveat. I do not have confidence in it.
Upwards movement cannot now be a fourth wave correction for intermediate wave (4) as price is now back up in intermediate wave (1) territory above 2,019.39. This has provided some clarity.
For the bullish wave count, it means that primary wave C must be over as a complete five wave impulse.
Intermediate wave (2) is seen as an atypical double zigzag. It is atypical in that it moves sideways. Double zigzags should have a clear slope against the prior trend to have the right look. Within a double zigzag, the second zigzag exists to deepen the correction when the first zigzag does not move price deep enough. Not only does this second zigzag not deepen the correction, it fails to move at all beyond the end of the first zigzag. This structure technically meets rules, but it looks completely wrong. This gives the wave count a low probability.
If the bull market has resumed, it must begin with a five wave structure upwards at the daily and weekly chart level. So far that is incomplete.
At 2,088 minor wave 3 would reach 1.618 the length of minor wave 1. Within minor wave 3, at 2,086 minute wave v would reach 1.618 the length of minute wave iii. This gives a two point target zone calculated at two wave degrees which should have a reasonable probability.
When minor wave 3 is a complete impulse, then minor wave 4 downwards may not move into minor wave 1 price territory below 1,930.68.
Within minute wave v, no second wave correction may move beyond the start of its first wave below 1,969.25.
It must be assumed that price is likely to still rise while price remains above 1,969.25.
BEAR ELLIOTT WAVE COUNT
MAIN WEEKLY CHART
Importantly, there is no lower invalidation point for this wave count. That means there is no lower limit to this bear market.
This bear wave count now has two ways to see downwards / sideways movement from the all time high, so two weekly charts are presented below.
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.
Minute wave ii is now longer in duration that minor wave 2 one degree higher. This has now reduced the probability of this wave count this week, which is why the alternate is presented.
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 21 sessions. When minute wave ii is more than twice the duration of minor wave 2, one degree higher, then this wave count will be discarded due to an exceptionally low probability.
The channel about minute wave ii is drawn using Elliott’s technique for a correction. Price is finding resistance along the lower edge.
Minute wave ii may not move beyond the start of minute wave i above 2,104.27.
At 1,428 intermediate wave (3) would reach 2.618 the length of intermediate wave (1).
A-B-C of a zigzag and 1-2-3 of an impulse subdivide in exactly the same way: 5-3-5. Subminuette wave v is moving higher. The structure does not look complete today at the hourly chart and five minute chart levels.
The channels are redrawn today. The green channel is copied over from the daily chart. The orange channel is drawn using Elliott’s second technique. When the orange channel is breached by downwards movement, that would provide earliest confirmation that the correction is over.
Earliest price confirmation of a trend change would come with a new low below 1,969.25.
Final price confirmation would come with a new low below 1,930.68. At that stage, confidence may be had in a third wave down.
ALTERNATE WEEKLY CHART
The impulse downwards for primary wave 1 is seen in the same way as the main bear wave count with the exception of degree. Here, the labelling is moved up one degree. Primary wave 1 may be complete and may have lasted 19 weeks, two short of a Fibonacci 21. So far primary wave 2 has lasted 22 weeks. It looks unlikely to continue for another 12 weeks to total a Fibonacci 34, so it may end in about two to five weeks time. This would still give reasonable proportion between primary waves 1 and 2. Corrections (particularly more time consuming flat corrections) do have a tendency to be longer lasting than impulses.
Primary wave 2 may be unfolding as an expanded or running flat. Within primary wave 2, intermediate wave (A) was a deep zigzag (which will also subdivide as a double zigzag). Intermediate wave (B) fits perfectly as a zigzag and is a 1.21 length of intermediate wave (A). This is within the normal range for a B wave of a flat of 1 to 1.38.
Intermediate wave (C) is likely to make at least a slight new high above the end of intermediate wave (A) at 2,116.48 to avoid a truncation and a very rare running flat. However, price may find very strong resistance at the final bear market trend line. This line may hold price down and it may not be able to avoid a truncation. A rare running flat may occur before a very strong third wave down.
Primary wave 2 may not move beyond the start of primary wave 1 above 2,134.72.
ALTERNATE DAILY CHART
Intermediate wave (A) fits nicely as a single or double zigzag.
Intermediate wave (B) fits perfectly as a zigzag. There is no Fibonacci ratio between minor waves A and C.
Intermediate wave (C) must subdivide as a five wave structure. It is not unfolding as an ending diagonal, so it must be unfolding as a more common impulse.
The short / mid term target for minor wave 3 is exactly the same as the short / mid term target for the bull wave count. A-B-C of a zigzag and 1-2-3 of an impulse both subdivide 5-3-5. The labelling within this upwards movement of each subdivision is the same for both wave counts.
Price is approaching the 0.618 Fibonacci ratio at 2,030. It may find some resistance there.
When minor wave 3 is a complete impulse, then minor wave 4 downwards may not move into minor wave 1 price territory below 1,930.68.
Intermediate wave (C) does not have to move above the end of intermediate wave (A) at 2,116.48, but it is likely to do so to avoid a truncation. If it is truncated and primary wave 2 is a rare running flat, then the truncation is not likely to be very large. As soon as price is very close to 2,116.48 this wave count looks at the possibility of a trend change.
The next wave down for this wave count would be a strong third wave at primary wave degree.
An hourly chart is not published for this idea because it would look mostly the same as the hourly chart for the bull wave count.
If price continues any higher, this may be the only bear wave count. If price continues higher, the main bear wave count will further reduce in probability. It may be discarded before it is invalidated by price.
If this alternate bear wave count is correct, then upwards movement of the last two trading days is the start of a fifth wave within a third wave. The decline in volume is acceptable and makes sense. Further, a third wave of a C wave is sometimes weaker than the first, with the fifth wave weaker still. This wave count would fit with volume and momentum as long as the third wave of minor wave 3 within intermediate wave (C) is not the weakest.
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.
A small green doji for Monday comes with lighter volume. Volume for Monday is lowest since the last major swing low on 11th February. The rise in price is absolutely not supported by volume. This suggests that the bounce is running out of steam. Any members choosing to enter long or hold long positions for this bounce are strongly advised to manage risk to those positions carefully. If a strong downwards movement begins earlier than expected, ensure your account is protected.
Price is finding resistance at the 200 day moving average and the horizontal trend line about 2,020.
ADX indicates there is a trend and it is upwards.
ATR is declining. If this upwards trend is the resumption of a bull market and if price is in a third wave of a new bull market, then ATR should be increasing or at the very least flat. The persistent decline of ATR indicates this is most likely a weak bear market rally and not a new bull market.
On Balance Volume broke above the technically significant pink trend line. The next line to provide some resistance is the green line. If OBV breaks below the pink line, it would be providing a strong bearish signal. If that happens before price moves very strongly lower, then OBV may be able to provide us with an early warning signal of the next mini market crash.
There is no divergence with price and RSI. RSI is not yet overbought.
There is divergence with price and Stochastics, but Stochastics is not a reliable indicator with divergence. This signal should be given only a little weight. Stochastics is still overbought.
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 @ 11:42 p.m. EST.