Upwards movement to about 2,175 or a little above was expected for Friday’s session.
Price moved higher to reach 2,177.09.
Summary: Upwards movement next week to a target at 2,231 is expected. This is supported by a short term bullish volume profile and an upwards breakout by On Balance Volume. If the target is wrong though, it may be too high.
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 15 months (two 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). The alternate looks at the possibility that a five wave impulse upwards for intermediate wave (1) only may be complete.
The labelling on the daily and hourly charts will consider primary wave 3 almost complete.
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 2,254.03.
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.
Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,159.07.
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 lasted nine days. Intermediate wave (5) may be close to completion; so far it has lasted two days.
There are two possible structures for intermediate wave (5). The first hourly chart below looks at the more likely and more common impulse and the second idea looks at a less likely ending diagonal.
Intermediate wave (4) may be a complete double flat correction.
Intermediate wave (5) may have begun. The most likely structure would be an impulse.
Minor waves 1 through to 3 may be complete so far within this possible impulse. Minor wave 2 fits as an expanded flat and minor wave 4 fits as a zigzag. If minor wave 4 continues further, then it may not move into minor wave 1 price territory below 2,169.73.
Minor wave 3 fits as an impulse on the five minute chart, although it looks like a three wave structure on the hourly chart. Minor wave 3 is just 0.11 points short of 1.618 the length of minor wave 1.
If the target for intermediate wave (5) is wrong, it may be too high. At 2,231 intermediate wave (5) would reach 0.618 the length of intermediate wave (1).
HOURLY CHART II
This hourly chart is identical to the first hourly chart up to the end of intermediate wave (4).
Thereafter, this idea looks at the other structural possibility for intermediate wave (5) of an ending diagonal.
The diagonal would be expanding because the third wave would be longer than the first wave. The fourth wave must be longer than the second wave, so it must move lower to at least slightly below 2,164.84. Minor wave 4 may not move beyond the end of minor wave 2 below 2,159.73.
Within an ending diagonal, all sub-waves must subdivide as zigzags. The fourth wave must overlap first wave price territory but may not move beyond the end of the second wave.
When minor wave 4 is complete, then minor wave 5 upwards must be longer than minor wave 3 which was 17.36 points.
While ending diagonals are reasonably common structures, expanding diagonals are less common. This slightly reduces the probability of this idea.
Price would need to breach the channel about primary wave 3 and still continue higher. This is possible; it is somewhat typical behaviour of the S&P.
DAILY CHART – ALTERNATE
A five wave impulse upwards from the end of primary wave 2 can now be seen as complete on the hourly chart. This looks too short to be primary wave 3 in its entirety, so the degree of labelling within it is moved down one degree from the main wave count.
Within the impulse of primary wave 3, it may be only intermediate wave (1) now complete. Intermediate wave (2) may be underway.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,991.68.
HOURLY CHART – ALTERNATE
If intermediate wave (1) was over on 20th of July, then intermediate wave (2) begins there. The movement from the last high is very choppy and overlapping, and difficult to analyse.
The downwards wave labelled minor wave A looks best as a three wave zigzag. With a new high above its start, this view is confirmed as correct.
If minor wave A is a three, then minor wave B may make a new price extreme beyond the start of minor wave A at 2,175.63 as in an expanded flat correction.
Intermediate wave (2) may be a flat, and it may also be relabelled minor waves W-X-Y as a double combination.
Within minor wave B, so far the structure looks like a combination: zigzag – X – flat. Within the second structure in this double, labelled minute wave y, the downwards wave of minuette wave (b) is a 1.07 length of minuette wave (a) indicating the most common type of flat, an expanded flat. Both waves labelled minuette wave (a) and (b) are seen as threes.
Minuette wave (c) has now made a slight new high above the end of minuette wave (a) at 2,174.98 to avoid a truncation and a very rare running flat. Minuette wave (c) must subdivide as a five wave structure. That structure may be close to completion.
Within the possible larger flat of intermediate wave (2), the normal range for minor wave B is between 1 to 1.38 the length of minor wave A, giving a range of 2,175.63 to 2,181.66.
When minor wave B is a complete structure, then a target for minor wave C to end may be calculated. At this stage an expanded flat, the most common type, is now indicated because so far minor wave B has moved over 1.05 the length of minor wave A. Minor wave C would be very likely to make a new low below the end of minor wave A at 2,159.75 to avoid a truncation.
Overall, intermediate wave (2) may be a sideways structure and not a deep pullback.
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 upwards may now be complete as per labelling for the alternate daily wave count above in terms of seeing the impulse of intermediate wave (C) complete.
A target range for primary wave 2 may be calculated. It would most likely be between 0.66 to 0.81 the length of primary wave 1. This gives a range from 1,934 to 1,880. It may find support at a lower parallel copy of the channel about Super Cycle wave (V) copied over from the monthly chart.
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, a deep pullback could very soon be expected for primary wave 2 to last several weeks. The final fifth wave up within intermediate wave (C) would need to complete first.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Last week completed a stalled candlestick pattern. This indicated a trend change from up to either down or sideways. This week completed a small red doji, so the trend may have changed from up to sideways. It may still yet turn down.
The bearish implications of the stalled candlestick pattern may now be fulfilled, or more downwards / sideways movement may continue.
This week’s red doji comes with an increase in volume. This short term volume profile is slightly bearish. Only slightly because the candlestick is a doji and not a regular candlestick with a red body.
On Balance Volume has come down to almost touch the upper purple line. It may find support here. If this line is breached, then some support may be expected at the next trend line.
RSI is not extreme and is flattening off. There is still room for price to rise.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Price remains constrained within a small consolidation, but today On Balance Volume may be indicating a breakout direction. OBV broke out of its corresponding consolidation upwards. The direction for price next week now looks most likely to be upwards.
The last session of upwards movement come with an increase in volume. However, this is still lighter than the last downwards session. During this consolidation, it is still a downwards day which has strongest volume suggesting a downwards breakout is more likely. However, this trick has recently been proven to not work at the weekly chart level, so it is approached with some suspicion at this time. More weight will be given to On Balance Volume.
ADX is above 15 and increasing. The +DX line is above the -DX line. ADX is indicating an upwards trend is in place.
ATR still disagrees as it is declining. There is something wrong with this trend. It does not look to be normal and healthy.
RSI is not yet overbought. There is room for price to rise further.
Stochastics is declining as price is rising but divergence is not currently working, so at this time this shall be given no weight at all. It will not be useful to assist in showing where this trend may end.
MACD is declining and may be about to indicate a trend change from up to down, but this too may not be reliable at this time.
At this time, the most reliable classic analysis still seems to be volume, short and mid term.
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 @ 05:31 p.m. EST on 30th July, 2016.