Upwards movement was expected.
Price made a slight new low on another very small range quiet day.
Summary: The mid term trend is still most likely up. In the short term, a small fourth wave correction may continue sideways. When it is done the target for the next wave up is at 2,126. If this fourth wave moves lower, then the target must also move correspondingly lower. The invalidation point is now only at 1,930.68. A new low below that point would indicate a big third wave down is underway.
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.
Another more conservative trend line is added today. If the Magee bear market trend line is drawn from the all time high to an earlier swing high labelled intermediate wave (B) on July 2015, then it sits higher up than the first cyan line. This lilac line may be the final line of resistance.
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.
With downwards movement for Tuesday’s session, it looks like minor wave 4 has arrived earlier than expected. Minor wave 3 did not reach the target and exhibits no Fibonacci ratio to minor wave 1. Minor wave 4 may not move into minor wave 1 price territory below 1,930.68.
Minor wave 4 may continue to move sideways before it is complete. If it moves any lower, then the target for minor wave 5 must also move correspondingly lower, so the target may change. At this stage, minor wave 5 would reach equality in length with minor wave 1 at 2,126.
Because I have so little confidence in this bullish wave count, an hourly chart will no longer be published for it. The structure would be the same as the alternate bear wave count in the mid term.
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. At this stage, with the small green dragonfly doji of Tuesday’s session, it looks like
minor wave 2*Edit: minute wave ii may be over already for this wave count. The dragonfly doji sits fully below the channel about this zigzag.
It is this point at which the two ideas for the mid term diverge. If upwards movement is a complete zigzag, then it should be over and price should move strongly lower. However, if the alternate below is correct, then upwards movement is incomplete and this movement sideways is a small fourth wave correction. How low the next wave goes will tell which of these two ideas is correct. Price must move below 1,930.68 to confirm the upwards movement is a complete zigzag for this first bear wave count.
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.
Minute wave ii may now be a complete 5-3-5 zigzag. So far downwards movement may be a first wave complete, with a second wave correction to follow. Subminuette wave ii may not move beyond the start of subminuette wave i above 2,024.57.
If this wave count is invalidated by upwards movement, it would reduce the probability of the wave count at the daily and weekly chart level. At that stage, it may be discarded.
This wave count requires confirmation below 1,930.68.
At 1,548 minute wave iii would reach 1.618 the length of minute wave i.
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 is in its 23rd week. It looks unlikely to continue for another 11 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.
At this stage, it looks like a 5-3-5 up is complete which may be minor waves 1-2-3. Sideways movement for the last two sessions may be minor wave 4 which may not move into minor wave 1 price territory below 1,930.68. Minor wave 3 may have ended earlier than expected, finding some resistance about the 0.618 Fibonacci ratio at 2,030.
If minor wave 4 ends here or very close to this point, then at 2,126 minor wave 5 would reach equality in length with minor wave 1. This target may see price find resistance at the new lilac trend line, and it would also see intermediate wave (C) avoid a truncation.
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.
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 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.
Redraw the channel about intermediate wave (C) using Elliott’s technique. Draw the first trend line from the ends of minor waves 1 to 3, then place a parallel copy on the end of minor wave 2. Look for minor wave 4 to find support at the lower edge of the channel, if it moves down that far.
ALTERNATE HOURLY CHART
Minor wave 2 was a shallow 0.33 expanded flat correction.
So far minor wave 4 may be unfolding as a combination, double flat or triangle. A triangle would offer best alternation with the expanded flat of minor wave 2.
Minor wave 4 may be very shallow to exhibit some alternation in depth with minor wave 2. Alternatively, it may be very deep to exhibit alternation, but as that would require a huge breach of the channel which is copied over from the daily chart it has a very low probability. It is most likely that minor wave 4 will be very shallow.
It is possible but unlikely that minor wave 4 is over already. It would be too brief in comparison to minor wave 2 and would exhibit too little alternation. It would have a better look if it continues sideways for a few days yet, maybe to find support at the lower edge of the channel.
Minor wave 4 has reached down into the fourth wave of one lesser degree price territory. It may end within this range, below 2,009.13 and above 1,969.25. The 0.236 and 0.382 Fibonacci ratios lie within this range. The 0.236 Fibonacci ratio at 1,989 would be favoured as it would offer some alternation with minor wave 2.
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 dragonfly doji for Tuesday’s session indicates indecision, a balance between bulls and bears with the bulls slightly winning. Coming after a reasonably sustained rise this doji in conjunction with the doji three days ago indicates the market is tired.
NYSE data shows a decline in volume for Tuesday’s session. The overall upwards movement was not supported by volume. This makes sense with the Elliott wave counts which see the last two days as a small fourth wave correction.
Price is finding resistance at the 200 day moving average and the horizontal trend line about 2,020.
ADX is flat to slightly rising overall, indicating the market may be trending.
While ATR continues to decline with price moving higher, this strongly now indicates that the upwards movement in price is not a normal trend. This supports the Elliott wave count which sees this movement as a bear market rally and not a new bull market.
On Balance Volume has come down to find support at the pink trend line. With a test of this line it will be indicative of the next movement for price. If OBV breaks below this line, it would favour the main bear wave count. If OBV bounces up from this line, the alternate bear wave count would be favoured.
Stochastics remains overbought. RSI has not reached 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 @ 09:50 p.m. EST.