Analysis yesterday again expected more upwards movement. While that is how the session began in the first hour, thereafter price fell to complete a small red daily candlestick.
Summary: In the very short term, a small pullback to about 2,147 or 2,133 is expected. If this expectation is wrong, it will be in that these targets are too low. The short pullback should also be brief; it may be over during Monday’s session as the earliest expectation, and a very few days at most. Thereafter, the upwards trend should resume.
Last monthly chart for the main wave count is here.
New updates to this analysis are in bold.
Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV is now seen as a more shallow 0.28 double combination lasting 14 months. With cycle wave IV nearly five times the duration of cycle wave II, it should be over there.
After some consideration I will place the final invalidation point for this bull wave count at 1,810.10. A new low below that point at this time would be a very strong indication of a trend change at Super Cycle degree, from bull to bear. This is because were cycle wave IV to continue further sideways it would be grossly disproportionate to cycle wave I and would end substantially outside of the wide teal channel copied over here from the monthly chart.
Cycle wave I lasted 28 months (not a Fibonacci number), cycle wave II lasted a Fibonacci 3 months, cycle wave III lasted 38 months (not a Fibonacci number), and cycle wave IV lasted 14 months (one more than a Fibonacci 13).
If the target for cycle wave V is for it to be equal in length with cycle wave I, then it may also be expected to be about equal in duration. So far cycle wave V is in its fifth month. After this month, a further 23 months to total 28 seems a reasonable expectation, or possibly a further 16 months to total a Fibonacci 21.
Wave count I should be preferred while price remains above 2,074.02. If price moves below 2,074.02, then wave count II would be confirmed.
DAILY CHART I
It is possible that primary wave 2 is already complete as a shallow regular flat correction. Primary wave 3 may have begun.
At 2,292 primary wave 3 would reach equality in length with primary wave 1. This is the ratio used for the target in this instance because primary wave 2 was relatively shallow and it fits neatly with the high probability target of 2,500 for cycle wave V to end.
Primary wave 3 may only subdivide as an impulse. So far within it intermediate waves (1) and (2) may be complete.
Within intermediate wave (3), no second wave correction may move beyond its start below 2,074.02.
At the end of this week, the degree of labelling within intermediate wave (3) is moved down one degree. An impulse upwards looks complete but volume does not indicate a deeper correction about to begin here. It may be that only minor wave 1 is complete. A small brief correction for minor wave 2 may complete before the strongest part of intermediate wave (3) up unfolds.
When intermediate wave (3) is a complete impulse, then intermediate wave (4) may unfold for another short term pullback. The expectation would be for intermediate wave (4) to last only a few days; intermediate wave (2) may have been over in just two. Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,108.71.
At 2,263 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).
A reasonable pullback may not be seen until primary wave 3 is over. When it is complete, then the following correction for primary wave 4 would be most likely a zigzag and must remain above primary wave 1 price territory at 2,111.05.
HOURLY CHART I
Volume at the end of this week does not yet indicate intermediate wave (3) is over.
Because so far upwards movement within intermediate wave (3) has not passed equality in length with intermediate wave (1) (that price point would be at 2,191), it should be assumed that it is most likely that intermediate wave (3) is incomplete.
Only minor wave 1 within the impulse of intermediate wave (3) may be complete. Minor wave 2 may end about either the 0.236 or 0.382 Fibonacci ratios of minor wave 1 most likely. This should be the expectation because primary wave 2 and intermediate wave (2) where both relatively shallow, so the pattern may continue.
Minor wave 2 should be brief, over in just two or three days most likely.
When minor wave 2 is complete, then upwards movement should continue with increased momentum and increased volume for the middle of a third wave.
HOURLY CHART I – ALTERNATE
It is possible but slightly less likely that intermediate wave (3) is over. Intermediate wave (4) may have begun on Friday with Friday’s red daily candlestick.
Intermediate wave (4) may be expected to last about two to five days in total, so that it is reasonably in proportion to intermediate wave (2) which lasted two days. Intermediate wave (4) would likely exhibit alternation in structure with the zigzag of intermediate wave (2), so it would most likely be a flat, combination or triangle. All these structures may include a new high above its start. It would most likely be choppy and overlapping.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,108.71.
DAILY CHART II
This wave count still has a reasonable probability.
The common length for intermediate wave (B) is from 1 to 1.38 the length of intermediate wave (A), giving a range from 2,111.05 to 2,156.41. At today’s high intermediate wave (B) is now 1.48 the length of intermediate wave (A), longer than the common range but not yet at the maximum convention of 2.
The idea of a flat correction should be discarded when intermediate wave (B) exceeds twice the length of intermediate wave (A) above 2,230.42.
When intermediate wave (B) is complete, then a target may be calculated for intermediate wave (C) downwards. It would most likely end at least slightly below the end of intermediate wave (A) at 1,991.68 to avoid a truncation and a very rare running flat. It may end when price comes down to touch the lower edge of the channel copied over from the monthly chart.
Primary wave 2 may also be relabelled as a combination. The first structure in a double combination may be a complete regular flat labelled intermediate wave (W). The double would be joined by an almost complete zigzag in the opposite direction labelled intermediate wave (X). The second structure in the double may be a flat (for a double flat) or a zigzag to complete a double combination. It would be expected to end about the same level as the first structure in the double at 1,991.68, so that the whole structure moves sideways.
An expanded flat for primary wave 2 is more likely than a double combination because these are more common structures for second waves.
HOURLY CHART II
The upwards zigzag of intermediate wave (B) or (X) may again be over.
With a red daily candlestick now printed for Friday’s session, this second wave count has slightly increased in probability but is still not supported by volume. If this wave count is correct, then another red daily candlestick should be printed for Monday that has higher volume.
If this wave count is indicated as more likely on Monday, then intermediate wave (4) may be expected to be a time consuming flat, combination or triangle most likely. It may last another one to four days to total a Fibonacci two or five at the most.
At 1,975 intermediate wave (C) would reach 1.618 the length of intermediate wave (A). This is the most common ratio for a C wave of an expanded flat, so it has a reasonable probability.
BEAR WAVE COUNT – WEEKLY CHART
It would still be possible that a Super Cycle trend change is close if Super Cycle wave (b) (or (x) ) is subdividing as a double zigzag.
However, the expected direction and structure is now the same short and mid term for this idea as it is for the main wave count.
Within the second zigzag of cycle wave y, primary wave C must complete as a five wave structure.
So far Super Cycle wave (b) is 1.72 the length of Super Cycle wave (a). This is comfortably longer than the normal range which is up to 1.38, but still within the allowable convention of up to 2 times the length of wave A.
Above 2,393.23 Super Cycle wave (b) would be more than twice the length of Super Cycle wave (a). Above this price point the convention states that the probability of a flat correction unfolding is too low for reasonable consideration. Above that point this bear wave count should be discarded. The same principle is applied to the idea of a double combination for Grand Super Cycle wave II
A five wave structure upwards would still need to complete for primary wave C. So far upwards movement is a very strong three wave looking structure. Trying to see this as either a complete or almost complete five would be trying to fit in what one may want to see to the waves, ignoring what is actually there.
At 2,178 intermediate wave (3) would reach 0.618 the length of intermediate wave (1).
Thereafter, intermediate wave (4) may move sideways for a few weeks as a very shallow correction. Thereafter, intermediate wave (5) would most likely make a new high. At 2,194 primary wave C would reach 0.382 the length of primary wave A. This final target is close to the round number of 2,200 and so offers a reasonable probability.
If price reaches 2,200 or close to it, then this idea would again be assessed, and an attempt made to determine its probability. The situation between now and then though may change.
The important conclusion is more upwards movement is extremely likely, as a five up is needed to complete.
Click chart to enlarge. Chart courtesy of StockCharts.com.
At the end of this week, price has very clearly broken out of the prior consolidation upwards. This applies not only to the small consolidation on the weekly chart shown by yellow support and resistance lines, but also to the larger multi month consolidation that was shown in prior weekly charts and which had the upper resistance line at the prior all time high of 2,134.
Volume this week is higher than last week. There is some support from volume for the rise in price although the first upwards week still has strongest volume.
From the last swing low, there is now a bullish engulfing candlestick pattern followed by three advancing white soldiers pattern. Both patterns are bullish.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Overall, volume is falling as price rises. The volume profile mid term is still bearish.
In the short term, Friday’s red daily candlestick comes with lighter volume than the prior upwards day. There is currently more support for price rises than falls; short term, it should be expected to see price continue to rise. The short term volume profile is still bullish. A larger pullback is not yet indicated. This supports wave count I over wave count II still.
ADX is increasing and above 15 indicating a new upwards trend is in place. At the end of this week, ATR is still very clearly declining. This is not normal for a trending market and indicates some weakness.
On Balance Volume at the end of the week is turning downwards. There is a little room for OBV to move lower before it finds support. If OBV comes down to touch the purple trend line, that may show when price stops downwards movement as the purple line offers support.
At the end of the week, there is still negative bearish divergence between price and RSI. This new upwards trend is lacking in strength.
At the end of this week, there is still negative bearish divergence between price and MACD. This new upwards trend is lacking in momentum.
There is again something wrong with this trend, so it should be expected eventually to be more than fully retraced. Each day the bulls are able to push price up by a smaller and smaller amount. This trend is tired and weak.
However, looking back at the larger picture price was able to rise in light and declining volume for many months up to the last all time high. Weakness indicates the movement is likely to be more than fully retraced, but weakness can persist for reasonable periods of time before the market changes from bull to bear. This persistent weakness indicates some caution, targets may be too high and optimistic.
VOLATILITY – INVERTED VIX MONTHLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
VIX from StockCharts is inverted. As price moves higher, inverted VIX should also move higher indicating a decline in volatility which is normal as price moves higher. As price moves lower, inverted VIX should also move lower indicating an increase in volatility which is normal with falling price.
There is still strong multi month divergence with price and VIX. While price has moved to new all time highs, this has not come with a corresponding decline in volatility below the prior all time high at 2,134. This strong multi month divergence between price and VIX indicates that this rise in price is weak and is highly likely to be more than fully retraced. However, this does not tell us when and where price must turn; it is a warning only and can often be a rather early warning.
At this time, although divergence with price and VIX at the daily chart level has been recently proven to be unreliable (and so at this time will no longer be considered), I will continue to assume that divergence with price and VIX at the monthly chart level over longer time periods remains reliable until proven otherwise.
This supports the idea that price may be in a fifth wave up. Divergence between the end of a cycle degree wave III and a cycle degree wave V would be reasonable to see. Fifth waves are weaker than third waves. This strong divergence indicates that price targets may be too high and time expectations may be too long. However, it remains to be seen if this divergence will be reliable.
Major lows within the prior bull market:
DJIA: 15,855.12 (15th October, 2014) – closed below on 25th August, 2015.
DJT: 7,700.49 (12th October, 2014) – closed below on 24th August, 2015.
S&P500: 1,821.61 (15th October, 2014) – has not closed below this point yet.
Nasdaq: 4,117.84 (15th October, 2014) – has not closed below this point yet.
Major highs within the new bear market:
DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.
DJT: 8,358.20 (20th November, 2015) – has not closed above this point yet.
S&P500: 2,116.48 (3rd Nobember, 2015) – has now closed above this point on 8th June, 2016.
Nasdaq: 5,176.77 (2nd December, 2015) – has not closed above this point yet.
Dow Theory Conclusion: Original Dow Theory still sees price in a bear market because the transportations have failed to confirm an end to that bear market. Modified Dow Theory (adding S&P and Nasdaq) has failed still to confirm an end to the old bull market, modified Dow Theory sees price still in a bull market.
This analysis is published @ 03:23 a.m. EST on 16th July, 2016..