A tiny red daily doji candlestick sits right on the trend line. Both hourly Elliott wave counts remain valid.
Summary: Upwards movement is either over yesterday or it may end slightly higher tomorrow. A breach of the green channel on the hourly chart would provide confidence that upwards movement is over. This would be confirmed by price with a new low below 2,058.35. If a third wave down unfolds tomorrow, then the short term target for minor 3 is at 1,907. The long term target for primary wave 3 remains at 1,423.
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 is complete and lasted 19 weeks. Primary wave 2 is over lasting 28 weeks.
An expectation for duration of primary wave 3 would be for it to be longer in duration than primary wave 1. If it lasts about 31 weeks, it would be 1.618 the duration of primary wave 1. It may last about a Fibonacci 34 weeks in total, depending on how time consuming the corrections within it are.
Primary wave 2 may be a rare running flat. Just prior to a strong primary degree third wave is the kind of situation in which a running flat may appear. 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.
Within primary wave 3, no second wave correction may move beyond its start above 2,111.05.
If intermediate wave (C) is over, then the truncation is small at only 5.43 points. This may occur right before a very strong third wave pulls the end of intermediate wave (C) downwards.
The next wave down for this wave count would be a strong third wave at primary wave degree. At 1,423 primary wave 3 would reach 2.618 the length of primary wave 1. This is the appropriate ratio for this target because primary wave 2 is very deep at 0.91 of primary wave 1. If this target is wrong, it may be too high. The next Fibonacci ratio in the sequence would be 4.236 which calculates to a target at 998. That looks too low, unless the degree of labelling is moved up one and this may be a third wave down at cycle degree just beginning. I know that possibility right now may seem absurd, but it is possible.
Alternatively, primary wave 3 may not exhibit a Fibonacci ratio to primary wave 1. When intermediate waves (1) through to (4) within the impulse of primary wave 3 are complete, then the target may be calculated at a second wave degree. At that stage, it may change or widen to a small zone.
With price still finding strong resistance at the bear market trend line, it is reasonably likely that minor wave 2 is over here as an expanded flat correction. If this is where minor wave 3 begins, then at 1,907 minor wave 3 would reach 2.618 the length of minor wave 1.
If minor wave 2 continues any higher to slightly overshoot the bear market trend line, then the target for minor wave 3 will have to move correspondingly higher. Notice that the bear market trend line has been overshot before at the high labelled primary wave 2, so it may be overshot again.
Minor wave 2 may not move beyond the start of minor wave 1 above 2,111.05. This is the risk to short positions at this stage.
If any members are choosing to enter short positions here, then manage risk carefully: Do not invest more than 3-5% of equity on any one trade and always use a stop loss to contain losses.
MAIN HOURLY CHART
Minor wave 2 now looks like it may be complete. Minute wave c is 4.67 points short of 1.618 the length of minute wave a.
Ratios within minute wave c are: there is no Fibonacci ratio between minuette waves (i) and (iii), and minuette wave (v) is 1.74 points longer than 0.618 the length of minuette wave (i).
The green channel is a best fit channel about minute wave c. It is slightly redrawn today so that it is more conservative and the same on both this main hourly chart and the alternate below. When this channel is breached by downwards movement, that shall provide trend channel confirmation that the upwards wave of minute wave c is over and the next wave down has begun.
The next wave down for this wave count should show a strong increase in downwards momentum.
The S&P often forms slow curving tops. This may certainly happen here, in the early stages of primary wave 3. Price may find some support at the lower edge of the green channel. When price breaks through support there, then downwards momentum may start to build.
A short first wave down may be followed by an incomplete expanded flat correction for subminuette wave ii. This may end again at the bear market trend line. Subminuette wave ii may not move beyond the start of subminuette wave i above 2,094.73. A new high above this point tomorrow or Tuesday would confirm the alternate hourly wave count below.
ALTERNATE HOURLY CHART
What if minor wave 2 is not over and will overshoot the bear market trend line?
It is possible that within minute wave c only minuette wave (iii) ended at the high for yesterday’s session. There is no Fibonacci ratio between minuette waves (i) and (iii).
There are no adequate Fibonacci ratios between subminuette waves i, iii and v within minuette wave (iii). This slightly reduces the probability of this alternate.
Minuette wave (iv) may show up on the daily chart lasting one to three sessions. This would give minute wave c a clear five wave look at the daily chart level. Minuette wave (iv) may not move into minuette wave (i) price territory below 2,058.35.
Minuette wave (iv) may be unfolding as a triangle as labelled. It may also be a combination or flat correction. All three options would see it exhibit alternation with the zigzag of minuette wave (ii).
The subdivisions for this alternate do not have as neat a fit on the five minute chart as they do for the main hourly wave count. This reduces the probability of this alternate.
BULL ELLIOTT WAVE COUNT
Cycle wave IV is seen as a complete flat correction. Within cycle wave IV, primary wave C is still seen as a five wave impulse.
Intermediate wave (3) has a strong three wave look to it on the weekly and daily charts. For the S&P, a large wave like this one at intermediate degree should look like an impulse at higher time frames. The three wave look substantially reduces the probability of this wave count. Subdivisions have been checked on the hourly chart, which will fit.
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 still do not have confidence in it.
The invalidation point will remain on the weekly chart at 1,370.58. Cycle wave IV may not move into cycle wave I price territory.
This invalidation point allows for the possibility that cycle wave IV may not be complete and may continue sideways for another one to two years as a double flat or double combination. Because both double flats and double combinations are both sideways movements, a new low substantially below the end of primary wave C at 1,810.10 should see this wave count discarded on the basis of a very low probability long before price makes a new low below 1,370.58.
If the bull market has resumed, it must begin with a five wave structure upwards at the daily and weekly chart level. That may today be complete. The possible trend change at intermediate degree still requires confirmation in the same way as the alternate hourly bear wave count outlines before any confidence may be had in it.
If intermediate wave (2) begins here, then a reasonable target for it to end would be the 0.618 Fibonacci ratio of intermediate wave (1) about 1,920. Intermediate wave (2) must subdivide as a corrective structure. It may not move beyond the start of intermediate wave (1) below 1,810.10.
In the long term, this wave count absolutely requires a new high above 2,134.72 for confirmation. This would be the only wave count in the unlikely event of a new all time high. All bear wave counts would be fully and finally invalidated.
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is a bearish engulfing candlestick pattern at the last high. This has occurred at the round number of 2,100 which increases the significance. Volume on the second candlestick is higher than volume on the first candlestick, which further increases the significance. That it is at the weekly chart level is further significance.
Engulfing patterns are the strongest reversal patterns.
Now this pattern is followed by another red weekly candlestick. The reversal implications of the pattern are confirmed.
This is a very strong bearish signal. It adds significant weight to the expectation of a trend change. It does not tell us how low the following movement must go, only that it is likely to be at least of a few weeks duration.
There is also a Three Black Crows pattern here on the weekly chart. The first three red weekly candlestick patterns are all downwards weeks. The pattern is not supported by increasing volume and only the third candlestick closes at or near its lows; these two points decrease the strength of this pattern in this instance. That the pattern occurs at the weekly chart level increases its strength.
On Balance Volume broke below the purple line and is now returning to just above it. The bearishness of the break below the purple line is negated.
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 red doji indicates indecision, a balance between bulls and bears with the bears only very slightly winning for the session. Light volume does not support the fall in price, but for a doji this is not necessarily bullish short term.
Volume overall has been declining since 18th of May (yellow line on volume). Overall, the rise in price was not supported by volume, so it is suspicious. This supports the Elliott wave count which sees this upwards movement as a counter trend movement.
ADX indicates there is a trend and it is upwards. ATR disagrees as it is declining. This also may support the Elliott wave count. There has been a short term upwards trend as price has moved higher overall for four days, but if it is a counter trend movement, then declining ATR would make sense.
On Balance Volume has turned down just below the yellow trend line. It may not get up to the yellow line. If the alternate hourly wave count is correct, then upwards movement from price may be held down by this trend line on OBV, so only one day of upwards movement may be able to unfold before OBV provides strong resistance. A break below the pink line would be a weak bearish signal. A break below the purple line would be a very strong bearish signal, because this line is highly technically significant. A break below the redrawn green line would be another weak bearish signal.
Stochastics is reaching overbought. An end to this upwards swing may be expected to be about here or very soon.
VOLATILITY – 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 (green lines). The decline in volatility did not translate to a corresponding increase in price. Price is weak. This divergence is bearish.
The short term divergence noted yesterday has disappeared today. What is very interesting today from VIX is that volatility has declined reasonably substantially on a small sideways day which produced a red candlestick (even though it was a very small one). This decline in volatility today appears to be rather over optimistic; it is not supported by a rise in price. This looks to be a bearish indicator today and supports the main hourly Elliott wave count.
BREADTH – 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 prior upwards movement.
From November 2015 to 20th April, the AD line made new highs while price 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 (orange lines).
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.
The AD line is now declining and has breached a support line (cyan). There is breadth to downwards movement; more stocks are declining than advancing which supports the fall in price.
There is regular bearish divergence today between price and the AD line. Price has made a lower high to the swing high dated 21st of April, but the AD line has made a higher high. This indicates weakness in price.
With divergence between price and the AD line it is reasonably likely that upwards movement is over here. This supports the main hourly wave count.
ANALYSIS OF LAST MAJOR BEAR MARKET OCTOBER 2007 – MARCH 2009
In looking back to see how a primary degree third wave should behave in a bear market, the last example may be useful.
Currently, the start of primary wave 3 now may be underway for this current bear market. Currently, ATR sits about 19. With the last primary degree third wave (blue highlighted) having an ATR range of about 18 to 76, so far this one looks about right.
The current wave count sees price in an intermediate degree first wave within a primary degree third wave. The equivalent in the last bear market (yellow highlighted) lasted 39 days and had a range of ATR from 16 – 27.
To see some discussion of this primary degree third wave in video format click here.
This chart is shown on an arithmetic scale, so that the differences in daily range travelled from the start of primary wave 3 to the end of primary wave 3 is clear.
Primary wave 3 within the last bear market from October 2007 to March 2009 is shown here. It started out somewhat slowly with relatively small range days. I am confident of the labelling at primary degree, reasonably confident of labelling at intermediate degree, and uncertain of labelling at minor degree. It is the larger degrees with which we are concerned at this stage.
During intermediate wave (1), there were a fair few small daily doji and ATR only increased slowly. The strongest movements within primary wave 3 came at its end.
It appears that the S&P behaves somewhat like a commodity during its bear markets. That tendency should be considered again here.
Looking more closely at early corrections within primary wave 3 to see where we are, please note the two identified with orange arrows. Minor wave 1 lasted a Fibonacci 5 days and minor wave 2 was quick at only 2 days and shallow at only 0.495 the depth of minor wave 1.
Minute wave ii, the next second wave correction, was deeper. Minute wave i lasted 3 days and minute wave ii was quick at 2 days but deep at 0.94 the depth of minute wave i.
What this illustrates clearly is there is no certainty about second wave corrections. They do not have to be brief and shallow at this early stage; they can be deep.
This chart will be republished daily for reference. The current primary degree third wave which this analysis expects does not have to unfold in the same way, but it is likely that there may be similarities.
Put / Call ratios are added today from data published at CBOE. This ratio is the index ratio published, not the ratio specifically for the S&P500. It should be a reasonable indicator of sentiment. Only values above 2 and below 1, extremes, are noted. A low P/C ratio indicates more long positions than short, so it is interpreted as bearish, a contrarian indicator. A high P/C ratio indicates more short than long positions, so it is interpreted as bullish, a contrarian indicator.
There were two instances where the P/C ratio gave a bullish extreme above 2 during primary wave 3. One instance happened right at the end of the middle of the third wave. My conclusion is that the P/C ratio may be a reasonable sentiment indicator, but it is not to be taken definitively. It should be one piece of information weighed up alongside other information. Currently, the index P/C ratio is not extreme. Only extremes will be noted.
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.
To the upside, DJIA has made a new major swing high above its prior major high of 3rd November, 2015, at 17,977.85. But DJT has so far failed to confirm because it has not yet made a new major swing high above its prior swing high of 20th November, 2015, at 8,358.20. Dow Theory has therefore not yet confirmed a new bull market. Neither the S&P500, Russell 2000 nor Nasdaq have made new major swing highs.
It is important to note here that traditional Dow Theory (using only DJT and DJIA) has confirmed a bear market and not confirmed the end of that bear market and the start of a new bull market. I would consider Dow Theory to be a solid and effective tool to determine overall market direction. This is another reason why I have little confidence in the alternate bullish Elliott wave count.
This analysis is published @ 09:00 p.m. EST.