Upwards movement continues as expected.
Summary: This is still a bear market rally until proven otherwise. A short term target for Monday is 2,057. This rally is reasonably likely to end above 2,116.48, but it cannot make a new all time high. In the short term, the target for a multi day interruption to the trend (a fourth wave which may last about five sessions) may arrive about 2,082 – 2,086. Use the new cyan line for this upwards movement for support along the way up.
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.
New updates to this analysis are in bold.
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.
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.
Intermediate wave (A) fits 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.
When it arrives 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.
A bull market trend line for this rally is drawn across the first two small swing lows as per the approach outlined by Magee. This upwards sloping cyan line may provide support for corrections along the way up.
A target for minor wave 3 is added. At 2,086 minor wave 3 would reach 1.618 the length of minor wave 1. At 2,082 minute wave v would reach equality in length with minute wave iii. This gives a 4 point target zone calculated at two degrees, so it has a reasonable probability.
Subminuette wave iii looks complete. Ratios within it are: micro wave 3 is 2.1 points longer than equality in length with micro wave 1, and micro wave 5 has no Fibonacci ratio to either of micro waves 3 or 1.
There is no Fibonacci ratio between subminuette waves iii and i. This makes it more likely that subminuette wave v will exhibit a Fibonacci ratio to either of subminuette waves iii or i. The most common ratio is equality with subminuette wave i at 2,057.
If subminuette wave iv is not over and continues further, then it would most likely be sideways. It may not move into subminuette wave i price territory below 2,019.06.
As soon as subminuette wave v can be seen complete, then the invalidation point must move to the high of minuette wave (i) at 2,018.91. Minuette wave (iv) may not move into minuette wave (i) price territory.
Monday may print a green candlestick to complete subminuette wave v. Thereafter, minuette wave (iv) may show on the daily chart lasting one to three days of overall downwards movement.
The small orange channel about minuette wave (iii) should contain subminuette wave v which may find resistance at the upper edge. When this small channel is breached by downwards movement, that may indicate minuette wave (iii) is complete and minuette wave (iv) may have begun.
BULL ELLIOTT WAVE COUNT
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.
Minor wave 4 may not move into minor wave 1 price territory below 1,930.68.
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.
Friday was an expiration day for contracts on the S&P500, which accounts for a large portion of volume on this day. To put this into context it should be compared with other expiration dates and not with days immediately prior. Thank you to our member Joseph for pointing this out. I have used data from NYSE below.
The last three expiration dates and volumes for S&P500 from NYSE data are:
18th September 2015 – 787.23 mil (down day)
18th December 2015 – 737.83 mil (down day)
18th March 2016 – 669.42 mil (up day)
Each of these last three expiration dates have seen declining volume. Overall, this may be interpreted as a decline in interest in options. It is my judgement (and I may be wrong on this; if any members have a convincing reason why then please do share) that this is not necessarily a bearish indication, but it is also my judgement that it does not support a bullish market. If the rise in price is to be sustainable, it needs to come with an increase in activity and not a decrease.
ADX is still increasing: the +DX line is above the -DX line. There is a trend and it is up.
ATR still disagrees though. There is something wrong with this trend as it is coming with a decrease in trading range. This trend is suspicious, which supports the bear Elliott wave count.
On Balance Volume is breaking above the green trend line, another weak bullish signal. This upwards movement may be expected to continue.
RSI is nearing overbought. Only when RSI is overbought and then exhibits some divergence with price would I expect to see an end to this upwards trend. That is not the case today. There is further room for price to rise.
Stochastics is overbought, but this oscillator may remain extreme for reasonable periods of time during a trending market. It still exhibits divergence with price which is bearish, but I have learned to not rely much on divergence between price and Stochastics. It is a weak signal only. It warns that the upwards movement in price is weak but does not tell that an end must come here.
The 200 day moving average is still pointing down. This indicates that price is more likely in a bear market than a bull market.
ADVANCE DECLINE LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
The Advance Decline line shows no short term (day to day basis) divergence with price. With the AD line increasing, this indicates the number of advancing stocks exceeds the number of declining stocks. This indicates that there is breadth to this upwards movement.
Longer term, looking back over the last five months, there are two cases of hidden bearish divergence between price and the AD line.
From November 2015 to December 2015 the AD line made a new high while price failed to make a corresponding high. This indicated weakness in price and preceded new lows for price.
Now again from 29th December, 2015, to now the AD line is making new highs but price has so far failed to also make corresponding new highs. This again is an indication of weakness in price. Despite price rising with market breadth increasing, the breadth increase is not translating to substantial rises in price.
It remains to be seen if price can make new highs beyond the prior highs of 29th December, 2015. If price can manage to do that, then this hidden bearish divergence will no longer be correct, but the fact that it is so strong at this stage is significant. The AD line will be watched daily to see if this bearish divergence continues or disappears.
The 200 day moving average for the AD line remains pointing down.
I am choosing to use the S&P500, Dow Industrials, Dow Transportation, Nasdaq and 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.
DJIA: 15,855.12 – close below on 25th August 2015.
DJT: 7,700.49 – close below on 24th August 2015.
Russell 2000: 1,343.51 – close below on 25th August 2015.
This analysis is published @ 05:26 p.m. EST on 19th March, 2016.