Downwards movement was expected for Monday. The short term target was at 2,128, but it was anticipated this may not be low enough.
Price did move lower and below the target to reach down to 2,124.56 for Monday’s session.
Summary: In the short term, two to a few days of upwards movement is expected to a target at 2,180. This is supported today by small bullish divergence with price and RSI, reasonable bullish divergence between price and the AD line, and a lack of support for downwards movement from volume. Overall, upwards movement is expected to end about 2,240 on the 25th of October.
Last monthly chart for the main wave count is here.
New updates to this analysis are in bold.
MAIN WAVE COUNT
Cycle wave V must subdivide as a five wave structure. I have two wave counts for upwards movement of cycle wave V. This main wave count is presented first only because we should assume the trend remains the same until proven otherwise. Assume that downwards movement is a correction within the upwards trend, until proven it is not.
Primary wave 3 is shorter than primary wave 1, but shows stronger momentum and volume as a third wave normally does. Because primary wave 3 is shorter than primary wave 1 this will limit primary wave 5 to no longer than equality in length with primary wave 3, so that the core Elliott wave rule stating a third wave may not be the shortest is met. Primary wave 5 has a limit at 2,316.85.
Primary wave 2 was a shallow 0.40 expanded flat correction. Primary wave 4 may have ended as a shallow 0.39 double zigzag. There is no alternation in depth, but there is good alternation in structure.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
It is also possible to move the degree of labelling within cycle wave V all down one degree. It may be only primary wave 1 unfolding. The invalidation point for this idea is at 1,810.10. That chart will not be published at this time in order to keep the number of charts manageable. The probability that this upwards impulse is only primary wave 1 is even with the probability that it is cycle wave V in its entirety.
When the five wave structure upwards labelled primary wave 5 is complete, then my main wave count will move the labelling within cycle wave V all down one degree and expect that only primary wave 1 may be complete. The labelling as it is here will become an alternate wave count. This is because we should always assume the trend remains the same until proven otherwise. We should always assume that a counter trend movement is a correction, until price tells us it’s not.
Primary wave 3 is moved to the last all time high. If it ended there, then this is where primary wave 4 has begun.
Primary wave 3 is 16.14 points longer than 0.618 the length of primary wave 1. This is a reasonable difference. But as it is less than 10% the length of primary wave 3, it is my judgement that it is close enough to say these waves exhibit a Fibonacci ratio to each other.
If this pattern continues, then about 2,240 primary wave 5 would reach 0.618 the length of primary wave 3. If this target is wrong, it may be too high. When intermediate waves (1) through to (4) are complete, then the target may be changed as it may be calculated at a second degree.
There is good proportion for this wave count. Primary wave 1 lasted 46 days, primary wave 2 lasted 47 days, primary wave 3 lasted a Fibonacci 34 days, and primary wave 4 lasted 42 days.
Primary wave 4 fits perfectly as a double zigzag. The second zigzag in the double should have ended with a small overshoot of the lilac trend line. This line should provide very strong support. There is almost no room left for primary wave 4 to move into.
If primary wave 4 continues any further, it may not move into primary wave 1 price territory below 2,111.05.
Primary wave 5 must be a five wave structure, so it is most likely to be a simple impulse. It may be relatively quick, and would be very likely to make at least a slight new high above the end of primary wave 3 at 2,193.81 to avoid a truncation.
The degree of labelling within primary wave 5 is moved up one degree today. Because primary wave 5 must be shorter in length than primary wave 3, each of its sub-waves should be shorter in length and duration. Intermediate waves (1) and (2) may now be complete. Intermediate wave (2) may today have ended when price came to almost again touch the lilac trend line.
Intermediate wave (2) fits as a deep double zigzag and may have ended close to the lilac trend line, over the 0.618 Fibonacci ratio of intermediate wave (1).
Intermediate wave (3) must subdivide as an impulse and should show stronger momentum than intermediate wave (1). It should also show support for upwards movement from volume. A short term target is at 2,180 where intermediate wave (3) would reach 1.618 the length of intermediate wave (1).
If intermediate wave (2) continues any lower tomorrow, then it may not move beyond the start of intermediate wave (1) below 2,114.72.
ALTERNATE WAVE COUNT
What if an impulse upwards is complete? The implications are important. If this is possible, then primary wave 1 within cycle wave V may be complete.
With downwards movement from the high of primary wave 1 now clearly a three and not a five, the possibility that cycle wave V and Super Cycle wave (V) are over has substantially reduced. This possibility would be eliminated if price can make a new all time high above 2,193.81.
If an impulse upwards is complete, then a second wave correction may be unfolding for primary wave 2. Expectations on how deep primary wave 2 is likely to be are now adjusted. It may be expected now to more likely only reach the 0.382 Fibonacci ratio about 2,038.
At this stage, it looks like price has found strong support at the lilac trend line.
Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10.
If an impulse upwards is complete, then how may it subdivide and are proportions good?
Intermediate wave (1) was an impulse lasting 47 days. Intermediate wave (2) was an expanded flat lasting 47 days. Intermediate wave (3) fits as an impulse lasting 16 days, and it is 2.04 points short of 0.618 the length of intermediate wave (1). So far this alternate wave count is identical to the main wave count (with the exception of the degree of labelling, but here it may also be moved up one degree).
Intermediate wave (4) may have been a running contracting triangle lasting 22 days and very shallow at only 0.0027 the depth of intermediate wave (3). At its end it effected only a 0.5 point retracement. There is perfect alternation between the deeper expanded flat of intermediate wave (2) and the very shallow triangle of intermediate wave (4). All subdivisions fit and the proportion is good.
Intermediate wave (5) would be very brief at only 18.29 points. Intermediate wave (5) is 1.43 points longer than 0.056 the length of intermediate wave (1).
At this stage, primary wave 2 now has a completed zigzag downwards that did not reach the 0.236 Fibonacci ratio. It is very unlikely for this wave count that primary wave 2 is over there; the correction is too brief and shallow. Upwards movement labelled intermediate wave (X) is so far less than 0.9 the length of the prior wave down labelled intermediate wave (W). The minimum for a flat correction has not been met. Primary wave 2 may continue lower as a double zigzag. A second zigzag in the double may be required to deepen the correction closer to the 0.382 Fibonacci ratio.
Intermediate wave (W) lasted a Fibonacci 13 sessions. Intermediate wave (X) is now changed today to see a triangle unfolding sideways. X waves may subdivide as any corrective structure (including multiples), and a triangle is possible here.
If minor wave C within the triangle for intermediate wave (X) moves any higher, then it may not move beyond the end of minor wave A above 2,179.99. It is possible today that the triangle for intermediate wave (X) is over and the breakout downwards may come quickly.
Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10. A new low below this point would see the degree of labelling within cycle wave V moved up one degree. At that stage, a trend change at Super Cycle degree would be expected and a new bear market to span several years would be confirmed.
Intermediate wave (X) will fit as a regular contracting triangle. Intermediate wave (Y) should subdivide as a zigzag to deepen the correction. Within intermediate wave (Y), the correction for minor wave B may not move beyond the start of minor wave A above 2,169.60.
Within the zigzag of intermediate wave (Y), minor waves A and B may be complete.
While it is possible that intermediate wave (Y) is a complete zigzag, it is also possible that it may continue lower to deepen the correction for primary wave 2. The second zigzag in the double should end further beyond the end of the first zigzag for the double zigzag to have a typical look.
This wave count requires confirmation with a new low below 2,111.05 before it should be used.
Click chart to enlarge. Chart courtesy of StockCharts.com.
The lilac trend line has strong technical significance. Price broke through resistance, turned down to test support for the first time, and then moved up and away from this line. It was reasonable to conclude that a new all time high is a likely consequence of this typical behaviour.
Now price has come back down for a second test of the lilac trend line. This line is expected to continue to provide support because support at this line is so strong. A break below this line would be a highly significant bearish signal.
Volume for a second downwards week is slightly lighter than the prior upwards week. The fall in price has less support from volume but not by much.
Volume for the two downwards weeks is lighter than two out of three of the prior upwards weeks. Mid term, at the weekly chart level, it still looks like price has more support for upwards movement than downwards from volume.
On Balance Volume has some distance to go before it finds support at either of the yellow lines.
RSI is close to neutral. There is plenty of room for price to rise or fall. There is no mid term divergence between price and RSI to indicate weakness.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Another downwards day comes with a further decline in volume. The fall in price is not supported by volume, so it is suspicious. This looks like a small counter trend pullback at this stage, and not the start of a new trend. This supports the main Elliott wave count.
ADX is still increasing and above 15. The -DX line is still above the +DX line. ADX indicates a downwards trend is still in place.
ATR disagrees as it is flat to declining.
Bollinger Bands are showing some small increase for the last three sessions, overall offering some agreement to ADX. However, BB’s are still reasonably tightly contracted and price is close to the lower edge.
Overall, a downwards trend may be in place. But if so, it is not healthy and it is suspicious.
On Balance Volume remains contained within support and resistance lines and may find some support here about the yellow line. If OBV turns up from here tomorrow, then the yellow line should be adjusted to better sit across the last few lows.
RSI exhibits some small divergence today with a higher low from price beyond the low of the 13th of October but a lower low from RSI. This small divergence is bullish and indicates weakness in downwards movement from price. This offers very small support to the main Elliott wave count. The support is judged to be weak because price is not in a clear trend and RSI is not oversold. The divergence is also relatively small.
Stochastics has not reached oversold, but it has not managed to reach extremes since August. It may be returning from almost oversold while price is returning from support.
MACD is still indicating downwards momentum.
Overall, with two small bullish signals today from volume and RSI, it is my judgement that this classic analysis offers some support to the main Elliott wave count.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. It appears so far that divergence between inverted VIX and price is again working to indicate short term movements spanning one or two days.
There is no new short term divergence noted today between price and inverted VIX to indicate weakness.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
Short term bullish and bearish divergence is again working between price and the AD line to show the direction for the following one or two days.
Bearish short term divergence noted in last analysis between price and the AD line has now been followed by one day of downwards movement. This divergence may now be assumed to be resolved because today there is new digvergence.
The AD line today made a lower low below the low three days ago on the 13th of October, but price has made a higher low. This divergence is bullish and indicates weakness in price. It may be expected to be followed by one or two days of upwards movement.
Major lows within the old 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 bear market from November 2014:
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 November, 2015) – closed above this point on 8th June, 2016.
Nasdaq: 5,176.77 (2nd December, 2015) – closed above this point on 1st August, 2016.
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 @ 11:11 p.m. EST.
I am curious. Did anyone else (besides Rodney, of course!) try to establish long positions this morning or yesterday? As I mentioned, I took a small loss on a bullish put spread I opened in anticipation of a move higher. I was able to take profits on my last bearish position on TLT and go long for the ride higher so it was not all red today. I also closed a bearish spread on FXE. I got to apply my two inviolable commandments of trading – a bit of an adjustment to Buffet’s rules one and two of not loosing money.
1. Thou shalt not linger in loosing trades.
2. Thou shalt not linger in winning trades.
Not today or yesterday.
Remember that tune by Queen?! 🙂
This is pathetic. It still hasn’t made a new high above the 14th of October. Intermediate (3) must do that to meet the rule.
There is a show of stronger momentum today at the hourly chart level. But that gives divergence with the last high, it shows price is weak. That short term divergence on the hourly chart is absolutely not a sign of a top though, only a warning that price is weak.
This is what I have today. I can see a five up. So now expect a three down. Minor 2 may retrace to either the 0.382 or 0.618 Fibonacci ratios of minor wave 1.
When the session is closed and I have volume, AD line and VIX data this expectation may well change.
Congrats Lara, looks like your main count will be correct. I went against you this time, it will be the last time.
That’s okay, sometimes I’m wrong. Sometimes you’ll be right when I’m wrong.
My advice would be to always do your own analysis as well and make your own judgements. Add my analysis as just one tool in your tool kit.
But the biggest bit of advice I’ll give which you should take, is to manage risk. It is the biggest most important aspect of trading. Invest only 3-5% of equity on any one trade. Always use a stop, whether it be set or mental while you watch the market.
I am not sure what trade you made today David but I opened a bullish 182/180 diamond put spread at the open and got hammered immediately. I closed the long side of the spread after about twenty minutes. Extremely low volume makes me a bit suspect of a third wave up being underway. I will wait for the close before I make a final decision. That could still change I realize.
Thanks for the advice Lara, definitely noted. Vern, I had the SPY 214/210 Debit put spread that I opened yesterday and it was working, until the gap up this morning
I have a small buy. I think I’ll be closing that shortly.
The banksters are broken, broken, broken, and perhaps irreparably so. When you cannot print a single green candle on a massive ramp up like we saw this morning, and even maintain the semblance of a rally in the first thirty minutes of trading…well,
Farewell and Adieu…
To You Spanish Ladies…
We have 5 waves down on 3 minute from this mornings top. Good start.
It does look rather pathetic doesn’t it.
It really is taking it’s time, and I don’t think it will be able to finish this structure by 25th October.
Yep. I am keeping some powder dry until we get some clarity. 🙂
You call that a rally??!! 😀
Well., well, well….the “B” boys seem to think that they can ghostbust the market spooks of October past with a mid-month ramp. Are you buying it?
I am keeping an eye on VIX. It will signal yet another possible fade if it does not quickly move below 15 and stay under. Of course we will know if it is a fade long before the close so today should be most interesting. I would expect SPX to quickly take out 2150 if we are starting a third up.
So far, futures not entirely convincing imo….we’ll see…