Sideways movement remained above the invalidation point on the main hourly Elliott wave count.
Summary: A small pennant or Elliott wave triangle may have ended today. This should be followed by a short fifth wave up to 2,205. The trend is up.
Last monthly chart for the main wave count is here.
New updates to this analysis are in bold.
MAIN WAVE COUNT
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 15 months. With cycle wave IV five times the duration of cycle wave II, it should be over there.
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.
This first weekly wave count expects the more common structure of an impulse is unfolding for cycle wave V. Within cycle wave V, primary waves 1 and now 2 should be over. Within primary wave 3, no second wave correction may move beyond its start below 1,991.68.
There is one other possible structure for cycle wave V, and ending diagonal. This is covered in an alternate.
It is most likely that primary wave 2 is already complete as a shallow regular flat correction. Primary wave 3 is most likely underway.
A five wave impulse is almost complete within primary wave 3. This impulse may be primary wave 3 in its entirety, or the degree of labelling within primary wave 3 may all be moved down one degree and this may only be intermediate wave (1) almost complete. When the fifth wave up is complete, then a new alternate will also be considered that sees only intermediate wave (1) complete.
The labelling on the daily and hourly charts will consider primary wave 3 almost complete. Intermediate wave (4) may now be a complete running barrier triangle.
Intermediate wave (3) is shorter than intermediate wave (1) within the upwards impulse. Because a core Elliott wave rule states a third wave may not be the shortest actionary wave within an impulse, this limits intermediate wave (5) to no longer than equality in length with intermediate wave (3) at 2,255.13.
When primary wave 3 is complete, then the following correction for primary wave 4 may not move back down into primary wave 1 price territory below 2,111.05.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,108.71.
Intermediate wave (1) lasted four days, intermediate wave (2) was a quick zigzag over in just two days, and intermediate wave (3) may have been over in six days. Intermediate wave (4) may have now ended in a Fibonacci eight days.
Intermediate wave (4) may be a complete running barrier triangle as labelled. Minor wave E moved lower at the start of Tuesday’s session, completing a larger more obvious three wave zigzag.
The target is recalculated. At 2,205 intermediate wave (5) would reach 0.382 the length of intermediate wave (1). This target is close to the round number pivot of 2,200 which should provide some resistance.
Intermediate wave (4) is a barrier triangle. Fifth waves following fourth wave barrier triangles are either very long extensions, or very short. In this instance, a very long extension may be eliminated because that would violate the core rule that intermediate wave (3) may not be the shortest actionary wave. Intermediate wave (5) should be expected to be very short.
Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,160.17.
It is very likely that this consolidation is over now because the triangle structure fits perfectly, is supported by MACD hovering about zero, and it lasted a Fibonacci eight days. This main wave count has a higher probability than the alternate below.
Confidence may be had in this main wave count with a new high above 2,175.11.
Redraw the channel about primary wave 3 using Elliott’s second technique: draw the first trend line from the ends of intermediate waves (2) to (4), then place a parallel copy on the end of intermediate wave (3). Along the way up, downwards corrections should find support at the lower edge. Intermediate wave (5) may end about the mid line of this channel.
Intermediate wave (5) may last about two to six sessions.
HOURLY CHART – ALTERNATE
This alternate is changed today. Intermediate wave (4) may be an incomplete double combination. The triangle may possibly have been an X wave joining two structures in the double.
The first structure in the double may be a regular flat correction labelled minor wave W.
Minor wave X may be a regular contracting triangle.
Minor wave Y may be unfolding as a zigzag. The most likely end for it would be about the same level as minor wave W at 2,155, so that the whole structure moves sideways. Within minor wave Y, minute wave b may not move beyond the start of minute wave a above 2,175.11.
If price does break below 2,160.17 tomorrow, then not much more downwards movement would be expected. Combinations should not have a slope; they should have a sideways look to them.
The second alternate in yesterday’s analysis is no longer published today. It no longer has the right look.
ALTERNATE WAVE COUNT
Cycle wave V may be unfolding as an ending diagonal. The most common type of diagonal by a reasonable margin is a contracting diagonal. When primary waves 1 and 2 are complete, then primary wave 3 would most likely be shorter than primary wave 1. If primary wave 3 were to be longer than primary wave 1, then the less common variety of an expanding diagonal would be indicated.
Within an ending diagonal, all the sub-waves must subdivide as zigzags and the fourth wave must overlap back into first wave price territory. The whole structure is choppy and overlapping with a gentle slope. The classic pattern equivalent is a rising wedge.
The zigzag of primary wave 1 requires a final fifth wave up as per the main daily wave count. Thereafter, a deep zigzag for primary wave 2 should unfold. It may find support at the lower edge of the teal channel copied over from the monthly chart.
When the end of primary wave 1 is clear, then a target range for primary wave 2 would be calculated. It would most likely be between 0.66 to 0.81 the length of primary wave 1. Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10.
Ending diagonals have corrective characteristics as they subdivide into a series of zigzags. Ending diagonals contain uncertainty; the trend is unclear as they unfold due to the deep corrections of their second and fourth waves. They are terminal and doomed to full retracement. This may explain some persistent weakness to this upwards trend at this time. The final target at 2,500 for the main wave count would be far too optimistic if this alternate is correct and the diagonal is contracting.
Third waves of even diagonals should still be supported by volume and should still exhibit stronger momentum than the first wave.
For this alternate wave count, when a final short fifth wave up completes intermediate wave (C), then a deep pullback would be expected for primary wave 2 to last several weeks.
Click chart to enlarge. Chart courtesy of StockCharts.com.
At the end of last week, another green weekly candlestick completes with a slight decline in volume. The last three weekly candlestick patterns now complete a stalled pattern. This is a bearish reversal pattern, so some caution about this upwards trend is warranted. A trend change to either sideways or down may occur here.
On Balance Volume is still bullish at the weekly chart level. If OBV turns down and breaks below the purple line, that would be a bearish signal.
RSI is not yet overbought at the weekly chart level. There is still room for price to rise.
Click chart to enlarge. Chart courtesy of StockCharts.com.
One more sideways day, a small doji, continues the small pennant pattern. Price has not yet broken out of the pattern. Using the measured rule, a target of about 2,274 would be indicated if price breaks out of the pattern upwards tomorrow.
There was some increase in volume today which completed a green candlestick. There was some support for the upwards movement from price.
ADX is increasing, indicating an upwards trend is in place. ATR is still declining, disagreeing with ADX. This is not normal for a healthy sustainable trend.
On Balance Volume is still constrained within two small trend lines. It has not broken out yet to indicate a direction for price. A break above the grey line would be bullish. A break below the yellow line would be bearish.
RSI is not extreme. There is room for price to rise further.
Stochastics is flattening off as price consolidates. This oscillator may remain extreme for reasonable periods of time during a trending market.
MACD is also flattening off as price consolidates. It still shows longer held divergence with price, but divergence is not currently reliable. It is noted, but not given much weight. The break above a trend line from MACD several days ago was a bullish signal.
Price may find support about the 13 day moving average as the upwards trend continues. This is quite close by today, so some upwards movement would be a reasonable expectation about here.
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 @ 07:49 p.m. EST.