Sideways movement of the last two sessions looks like an Elliott wave contracting triangle.
In the short term, the wave count is changed. In the mid term, the expected direction is the same.
Summary: This is still a bear market rally until proven otherwise. A final fifth wave up is required to complete the structure. A new high reasonably above 2,075.07 would confirm a fifth wave is underway, with a target now at 2,117. It may end on 19th April, 2016.
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
WEEKLY CHART
Click chart to enlarge.
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 has begun its 27th week. It looks unlikely to continue for another 7 weeks to total a Fibonacci 34, so it may end in about one to two 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.
If price moves above 2,116.48, then the new alternate bear wave count would be invalidated. At that stage, if there is no new alternate for the bear, then this would be the only bear wave count.
Primary wave 2 may not move beyond the start of primary wave 1 above 2,134.72.
DAILY CHART
Click chart to enlarge.
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 unfolding as an impulse.
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.
At this stage, it looks very much like a triangle is unfolding for minor wave 4. While technically this means the invalidation point at the daily chart level must be moved down to the end of minor wave 1 at 1,930.68, movement below 2,033.8 would substantially reduce the probability of more upwards movement well before final invalidation of minor wave 4.
Minor wave 4 may not move into minor wave 1 price territory below 1,930.68.
The channel is redrawn because minor wave 4 breached the lower edge. Draw the channel now using Elliott’s second technique: draw the first trend line from the ends of minor waves 2 to 4, then place a parallel copy on the end of minor wave 3. If minor wave 4 continues further sideways, redraw the channel.
About 2,117 minor wave 5 would reach 0.618 the length of minor wave 1, and intermediate wave (C) would just avoid a truncation.
The point in time at which triangle trend lines cross over sometimes sees a trend change, and sometimes this is where a fifth wave ends. That point at this stage is on 19th April. This may be when minor wave 5 ends. If the triangle continues further, this point may change.
HOURLY CHART
Click chart to enlarge.
A running contracting triangle may now be complete for minor wave 4. This wave count resolves the problem the last hourly wave count had of a lack of upwards movement and momentum for a third wave.
Both minute waves d and e may now be complete. Because minute wave b subdivides best as a double zigzag, it is unlikely that either of minute waves d or e could continue further as double zigzags (there may be only one multiple subwave within a triangle).
If minute wave e continues any further, it may not move beyond the end of minute wave c below 2,033.80.
If minute wave d does continue further (if my labelling of minute wave b as a double zigzag is wrong and it is seen as a single zigzag), then it may not move reasonably beyond the end of minute wave b at 2,075.07. Minor wave 4 could be a barrier triangle as long as the b-d trend line remains essentially flat.
The movement out of triangles is often swift and sharp. If tomorrow gaps up on the open and price continues upwards strongly, then an upwards breakout should be on the way.
ALTERNATE WEEKLY CHART
Click chart to enlarge.
Primary wave 1 may subdivide as one of two possible structures. The main bear count sees it as a complete impulse. This alternate sees it as an incomplete leading diagonal.
The diagonal must be expanding because intermediate wave (3) is longer than intermediate wave (1). Leading expanding diagonals are not common structures, so that reduces the probability of this wave count to an alternate.
Intermediate wave (4) may continue higher now and may find resistance at the bear market trend line.
ALTERNATE DAILY CHART
Click chart to enlarge.
Within a leading diagonal, subwaves 2 and 4 must subdivide as zigzags. Subwaves 1, 3 and 5 are most commonly zigzags but may also sometimes appear to be impulses.
Intermediate wave (3) down fits best as a zigzag.
In a diagonal the fourth wave must overlap first wave price territory. The rule for the end of a fourth wave is it may not move beyond the end of the second wave.
Expanding diagonals are not very common. Leading expanding diagonals are less common.
Intermediate wave (4) must be longer than intermediate wave (2), so it must end above 2,059.57. This minimum has been met. The trend lines diverge.
The subdivisions within intermediate wave (4) are changed today. The triangle which may have just ended is seen as minor wave B. Intermediate wave (4) now has a clearer three wave look to it. At 2,100 minor wave C would reach 0.236 the length of minor wave A.
For this alternate, the bear market trend line would be a better guide than the price target. If price comes up to that trend line, then for this alternate it should end there. If that is where price turns, this alternate would have a reasonable probability and would continue to be published alongside the main wave count.
Leading diagonals may not have truncated fifth waves. Intermediate wave (5) would most likely be a zigzag, must end below 1,810.10, and must be longer in length than intermediate wave (3) which was 306.38 points.
BULL ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
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.
DAILY CHART
Click chart to enlarge.
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 2,143 minor wave 5 would reach equality in length with minor wave 1.
Within minor wave 5, no second wave correction may move beyond the start of its first wave below 2,022.49.
TECHNICAL ANALYSIS
DAILY CHART
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.
Price has been trending upwards for 40 days. The 13 day moving average is mostly showing where downwards corrections are finding support, but this support may be breaking down. Price is finding resistance at the horizontal trend line about 2,075.
The downwards movement in price today had some small support from volume which was higher than the prior day. However, volume is still light and overall declining. This supports the Elliott wave count short term; as a triangle completes volume and momentum should both decline.
As price moves upwards, it comes overall with declining volume. The trend is weak. It is not supported by volume, so is unsustainable.
ADX is now declining, indicating the market is no longer trending. This happens about the time of a trend change. The +DX line is still above the -DX line, but only just. A trend change has not been indicated yet.
ATR consistently declined while price moved higher. Normally, during a trending market ATR increases. This trend is abnormal. With declining ATR, the trend looks weak.
ATR is now flattening off. It should be expected that ATR will again start to increase. If it can’t do it when price is moving upwards, it may again do it when the next downwards wave arrives.
On Balance Volume is now contained within two purple short term lines. A break out of this small zone, above or below, may precede price direction. For OBV to give a clear bearish signal it needs to break below the pink line which has strong technical significance.
RSI has not managed to reach overbought during this trend. I would have expected upwards movement to only end when RSI reached overbought and then exhibited divergence with price at the final high. This may yet happen. If it does, I would have some confidence in calling a trend change.
Stochastics did reach overbought and did exhibit divergence with price. This indicates weakness in price at the end of upwards movement.
INVERTED VIX DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volatility declines as inverted VIX climbs. This is normal for an upwards trend.
What is not normal here is the divergence over a reasonable time period between price and inverted VIX. The decline in volatility is not translating to a corresponding increase in price. Price is weak. This divergence is bearish.
BULLISH PERCENT DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is strong hidden bearish divergence between price and the Bullish Percent Index. The increase in the percentage of bullish traders is more substantial than the last high in price. As bullish percent increases, it is not translating to a corresponding rise in price. Price is weak.
This looks like an overabundance of optimism which is not supported by price.
ADVANCE DECLINE LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
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.
From November 2015 to now, the AD line is making new highs while price has so far failed to make a corresponding new high. This indicates weakness in price; the increase in market breadth is unable to be translated to increase in price.
It remains to be seen if price can make new highs beyond the prior highs of 3rd November, 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 is now increasing. This alone is not enough to indicate a new bull market. During November 2015 the 200 day MA for the AD line turned upwards and yet price still made subsequent new lows.
DOW THEORY
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.
S&P500: 1,821.61
Nasdaq: 4,117.84
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 @ 09:11 p.m. EST.
It’s been noted in comments below that if this breakout from the triangle is the real deal it should come with increased momentum and volume. And probably ATR at the hourly chart level.
This could still be wave D of the triangle as per this chart. D could still continue higher, and even slightly above 2,075.07 for a barrier triangle. But most likely it is over here, the proportions look better than yesterday now.
Wave E is most likely to end short of the lower triangle a-c trend line. It can’t move beyond the end of c at 2,033.80.
More sideways movement for another day or two yet folks. The target and time calculation will change.
SPY looks like a break of the upper channel on the hourly with a throwback to the upper trend line at the close. I’m looking for continuation upwards tomorrow to 2070ish on SPX
Yep! That’s exactly the way I drew my lines. The retouch of the upper trend-line was important I think.
Tepid volume today likely means today’s highs was wave D rather than a breakout imho.
I also identified the possible retest but I’m not buying it atm.
We couldn’t have asked for a better Minor 4 pattern – let’s hope it doesn’t morph into something else.
Out of the game all day tomorrow so hoping there are no major fireworks.
Futures already up substantially, so unless things change as the evening wears on, we will have our break-out in spades at the open, low volume not withstanding, The more I think about it, the more it makes sense that a doomed rally such as this will get quite a bit of its juice from the banksters and the cohort of bullish traders harboring great confidence in them. I suspect we are going to approach the price target a lot faster than some of us expect as the banksters pull out all the stops in this all out push to try and achieve new all time highs. I would not be in the least bit surprised to see a 25-35 point run tomorrow if futures stay elevated. The 2075 level should be taken out early. Exciting days ahead….
Vern,
I am not seeing the elevated futures as they are pretty much at ZERO OR slightly negative on Bloomberg.
“What’s guh-guh-guh-guh—…what’s happening?”
“Th-Th-Th-Th-Th-… That’s all, folks.”
“Th-th-th-that’s all folks!”
“And Dat’s De End!”
How does the volume compare to the rest of the week and last week? I see leaders recording lower volume readings…
Has not closed out yet… SPX volume about the same as yesterday.
You would think that volume today would blow away yesterday… But it did NOT!
I will post exact volume when it’s closed.
SPX Volume:
$580.987 Million – Yesterday
$587.008 Million – Today only ~ 6 million more on an up big day? Not a good sign.
Vern,
Interesting how NUGT is not showing the sell off you would expect given the rally so far. UVXY is over 20 mark last time I checked after touching the daily low of 19.67. Now waiting and seeing how the close works and volume so far to support this ramp.
Yep. UVXY hanging very tough. I still expect a final spike down to below 18.00. I also think some folk continue to accumulate. I’ve already got such a big position I have not been paying too close attention.
Same thing with NUGT. Just as the miners got disconnected from the metal during the last bull run (they badly lagged the metal) the opposite may happen with this bull cycle. I suspect a lot of folk are buying NUGT based on the recent price action. All the more reason why I think a huge shake-out is just ahead. I guess we’ll see…! 🙂
Here’s a chart of the action in NUGT. This kind of cavorting in the region above the upper BB is generally a sign there’s gonna be some changes…!
WYNN did it a few weeks ago at 96 and came all the way down to 85 a few weeks later. I expect we will see something very similar here, with a much bigger correction because of the extremity of the current move. Easy short! 🙂
Still monitoring the May 6 201.5 strike SPY puts. They have already come down by about half ( I should have sold the bullish put spread! 🙂 ) and I think they are going to go for pennies when this wave up completes. Delta is up a bit to – 0.27 but still no evidence of MM concern about the mid term. I start pocketing a few when they start selling for 0.50 or less on the ask.
Have a great evening everyone!
2063 cleared.
2067 is the next resistance and 2075 on deck! Let’s see if they hold.
Boy oh boy, this poor bull is really exhausted. It is on its last legs not even aware that it will soon be ground beef and steaks. Yum!
Since we’re just clearing the upper trendline, the strongest part of the move should be now. Let’s see if we can get close to 2070 today and I will be happily out of my long trades at the close. Time to start eyeing some select May expiration puts….
I am holding onto UVXY 19 puts as an early warning indicator for when it makes the turn…
The upper trendline of the 4 day triangle has been broken. 2063 next ??
If it goes past 2075 today, I am out….
Slight fall back to touch upper trend line perhaps, and if break-out genuine, onwards and upwards…anything more and that may be the end of just an initial impulse up….
A genuine breakout should come on increased volume and close above the trendline. So (atm) price isn’t acting like the triangle is complete imo.
I can certainly now count it as complete, but I suspect there is still a bit more frustration in store. As a guess, we are still in wave (d).
Still SOH waiting to pounce 🙂
I took another look and I see what you mean about still being in wave D. It makes B a good sized three but not really out of proportion with A and C. If you are right, here comes another hair-on-fire moment for anyone trying to jump on the long side on the break above the trend-line as wave E has them for dinner…
A trade back down to the trend-line would be a slam-dunk long trade for an easy triple I think…
I took another look and I see what you mean about still being in wave D. It makes B a good sized three but not really out of proportion with A and C. If you are right, here comes another hair-on-fire moment for anyone who tried to jump on the long side on the break above the trend-line as wave E down has them for dinner…
In theory this wave up could make a new high (slightly) above 2075 and still be wave (d) (barrier triangle).
Finally…!
Quick double on 208 calls; they will probably go to 0.50 today, and if the move up continues 0.75 tomorrow..
Does anyone think we may get a 50% pullback into the triangle tomorrow?
Dunno…It depends on how complex the structure becomes; this mini thrust could be reversed for a visit to the lower trend line once again to keep everyone off-balance…I’d like to see 2067.33 taken out to have confidence that this is a true break-out to the upside…
Yet another triangle! Could we be already in a fourth wave, with the last move out of the triangle the fifth and final wave?
I still think it would only be the beginning of the last move up…
Triangle counting is often rushed as they end up being bigger than they first appear. Price could continue meandering for quite a while longer and internal sub divisions can be triangles themselves to max out the frustration.
Imo 2022 is still the important line in the sand as other levels could be taken out as the triangle progresses without the overall triangle count being invalidated.
We’re possibly still in wave (d), but then we could also still be in wave (c) if 2033 is taken out.
Despite the frustration, the triangle would be a great structure if it is correct as it confirms we are only one wave away from finishing the whole structure, as the main count suspects.
Hear! Hear! I cannot tell you how often I have missed the actual break-out by falling for a series of head-fakes…
It seems to be that the next move should be through the triangle’s upper trend-line. I am not sure how the labelling would account for another visit to the lower one…we will see shortly no doubt…
On the hourly chart it actually does not look like we have really broken from the triangle trend-lines as yet…despite the big swings this morning…
Breakout awaits…
Should me starting small degree third up just about now…confirmed with a take-out of 2062.93…
I agree with this 100%…
Bill Gross Unleashes Tweetstorm On Five “Investor Delusions” Soon To Be Exposed
http://www.zerohedge.com/news/2016-04-12/bill-gross-unleashes-tweetstorm-five-investor-delusions
Ditto
Another even earlier trigger a trader I like uses (Jeff Clark) is the 9 day EMA. It was violated last week in the first shot across the bow that the rally is coming to a close. When it next crosses below the 50 day MA would be a good time to get very cautious.
The safest pivot trigger for those who do not endure being temporarily under water well is SPX 2000. We will know the next wave down has arrived when it is decisively taken out, and I mean decisively. Any wrangling in the area of those round number pivots (for DJI, 17000) would in my mind strongly militate against the primary wave down thesis. Those pivots happen to also be in the area of the 200 dma and the hallmark, the Sine Qua Non as it were of primary third waves is that they absolutely take no prisoners, demolishing any and all previously held resistance pivots. You know it when you see it.
I think we are only a week or so away…
mitigate?
The upper Bollinger Band on the daily chart is around 2080. That is a good target on the potential upwards breakout of the triangle.
I plan on taking my exit at 2075 on everything and deploying remaining powder by way of laddered short positions on any further upward movement. I think we still have a few shorts hanging tough…and the banksters are determined to rattle the cages…
Upper downward sloping trendline from 2075 is now roughly at 2060. If the bull can break through, look for a retest of the trendline from above before moving on to 2075 or so. If the bears can hold the line at the trendline (2060), it is a different story altogether.
Triangles tend to compress the spring and the release / break out is often powerful. A series of 1-2 waves does the same thing, coil up energy to be released all at once.
Five wagons waiting to ~2100 to be loaded.
I don’t think it’s going to get there… it is too obvious.
The Bulls are already very, very, very… giddy.
The Pro Bears have all run away to hide for now.
3 X’s is a charm and today will be the 3rd day in a row, I think. We shall see how it plays out as the day goes on.
What to do??? I have been fully in for the play I see coming for over a week.
If the breakout is downwards which is a legitimate possibility, then I load up a few more wagons when we break out. Saving the rest for the 1st tradable 2nd wave. I am happy either way. But the entry prices will be a lot better at 2100. Also, if we go up to 2100, we will have all sorts of confirming negative divergences in the sentiment and momentum indicators. Right now at 2057 we are still waiting. At least it is a little bit better than boring.
All the Buy and Hold people are happy as hell… that their accounts have recovered to end of month June 2015 dollar values. They are 100% confident that Buy & Hold is the ONLY way to play the stock market. + their advisors are reinforcing that view.
It will take a 15% to 25% move down in one/two weeks without much of a bounce over the following couple of weeks… followed by further sharp new lows to shake them out of their positions.
Only then will all hell break loose.
You got it on the buy & hold crowd. Some how they never learn their lesson.
Just wanted to echo Lara’s thanks to Paul for spotting the triangle. After he did the lights came on…. 🙂
DITTO
Rolling half SPY 206 calls into 208 to capture additional pop…holding UVXY 19 puts…
Vern,
UVXY and GDX/NUGT is not acting in support of the ramp that we are seeing in the markets now. Something will give soon…waiting.
Just a delayed reaction. I expect both to experience a sharp drop before this wave up completes…stay tuned…
This is a classic thrust out of a triangle and we are now in the final wave up. Those who saw the triangle did not take the bear bait the banksters pulled this morning. We now go up to the 2100 area and that is the time to short this market with all you’ve got…
UVXY should revist the 16.50 t0 18.50 area for the last time this year…Lara knows!
Vern,
I don’t think it will go that high as fundamentals and news out doesn’t support the ramp. I know technically, it is being called for a long time now but I expect this ramp to fail much sooner than that. Markets are extremely overbought on a number of measures and outlook. Maybe I am not seeing something but waiting for now…
You do have a point. Some of it will be triggered by short-covering. Remember the moves out of these triangles are usually very sharp, and very steep, boosted by capitulation of previous shorts, and more piling in expecting the trend to continue. The reversal will be brutal…but not quite yet…
If this is indeed primary two up, the vast majority at the end will conclude that the bull has returned! 🙂
The shorts have been gone… pro traders are playing a continued bull move to new highs or near new highs.
So exactly who will be covering? Very few shorts remain at this point.
Vern,
I am with Joseph on this cause the notion of extremely large short position was floated by the wall street for a purpose. Just going by our group here, I don’t see a lot of folks holding short positions of significance as we are all waiting for 2100ish. I am not counting the swing trades as those are temporary.
You do not need widespread shorting to affect market price action; just concentrated shorting. We see this repeatedly in the metals futures market. I do agree we are very unlikely to have a lot of retail investors short the market. They have been largely absent the last few years…
Most traders are bullish, there may be some heavy hitters still holding big short positions. I saw a spike down to 202 in SPY two days ago that was probably a monster short sale…
The point was going against short sentiment… as the Bulls keep claiming.
If this POP in SPX @ 10:30AM doesn’t hold… market will explode lower.
Agree, desperate attempts going on to hold the current levels. Worst part is that they will continue to trap the investor by dangling the carrots. After market closes future are going to sell off as market makers will have the ability to keep majority participants out. Waiting and waiting.. Wondering when 2022 is taken out what panic will start as per the Rydex ETF data the long position are indicating top is in place for the markets. % of longs is very high comparable to previous tops…. Waiting ..
Just imagine when all these longs start to liquidate the positions…
The final thrust of a dying BULL… The Bull has shot it’s final l _ _ d! Don’t forget to duck.
Yes, No, Maybe ????????
LOL…. Boring day. I need some amusement.
Lot of money being spent to hold the indexes from falling apart…watching the leaders and the break could come and will be very swift. waiting and waiting…IMF news out today confirms the state of world economy no matter what the FEDs are saying…waiting…
The lower trendline of the triangle needs to hold as does the 2033 low. If they do not, it is not looking good for a move above 2075.
Another boring day taking shape.
Laura, thanks for including time / dates. I realize time is an estimate and also realize your estimates are better than mine!
Hi! 🙂
Hi Verne