An inside day began with downwards movement, as expected, but the target was not reached.
Summary: A correction down to about 2,120 and the lilac trend line is expected next week. Use this as an opportunity to join the trend for a third wave up. Volume strongly supports the Elliott wave count.
Last monthly chart for the main wave count is here.
Last weekly chart is here.
New updates to this analysis are in bold.
MAIN WAVE COUNT
DAILY CHART
Click chart to enlarge.
Primary wave 2 now looks to be complete as a double zigzag. Within primary wave 2: intermediate wave (W) was a very shallow zigzag lasting a Fibonacci 13 sessions; intermediate wave (X) fits perfectly as a triangle lasting 20 sessions, just one short of a Fibonacci 21; and intermediate wave (Y) also lasting 20 sessions deepens the correction achieving the purpose of a second zigzag in a double.
Primary wave 2 looks like it has ended at support about the lower edge of the maroon channel about primary wave 1, and at the 200 day moving average.
With upwards movement slicing cleanly through the lilac trend line, this behaviour looks to be more typical of an upwards trend. At this stage, corrections within primary wave 3 may be expected to turn down to test support at this trend line. While after hours movement did not find support there, the New York session did.
At 2,500 cycle wave V would reach equality in length with cycle wave I.
At 2,467 primary wave 3 would reach equality in length with primary wave 1. This is the ratio used in this instance because it fits with the higher target at 2,500.
Within primary wave 3, intermediate wave (1) may have ended at the last high. Intermediate wave (2) may turn price downwards next week to test support at the lilac trend line.
Primary wave 3 may show some strength compared to primary wave 1, but it does not have to. This wave count sees price in a final fifth wave at cycle degree, within a larger fifth wave at Super Cycle degree. The upcoming trend change may be at Grand Super Cycle degree, a once in generations trend change. This final fifth wave should be expected to exhibit great internal weakness; this market may appear broken. That would be typical behaviour for a final fifth wave of this magnitude.
HOURLY CHART
Click chart to enlarge.
Upwards movement to the last high is reanalysed.
Intermediate wave (1) may have ended at the last high. The problem of proportion for the current correction is now resolved.
There are no adequate Fibonacci ratios between minor waves 1, 3 and 5 within intermediate wave (1).
Ratios within minor wave 1 are: there is no Fibonacci ratio between minute waves i and iii, and minute wave v is 1.98 points short of 1.618 the length of minute wave i.
Ratios within minor wave 3 are: minute wave iii is 1.04 points longer than 1.618 the length of minute wave i, and minute wave v is 1.64 points short of equality in length with minute wave i.
Intermediate wave (2) would most likely end about the 0.618 Fibonacci ratio of intermediate wave (1) at 2,121. This is close to the lilac trend line.
Within intermediate wave (2), minor wave B may be incomplete. It may move either higher or sideways on Monday. If minor wave A is correctly analysed as a five wave impulse (this is what it looks like on the five minute chart), then minor wave B may not move beyond its start above 2,182.32.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 2,083.79.
Intermediate wave (1) lasted four days. Intermediate wave (2) has so far lasted one day and may continue to total a Fibonacci three, five or eight days. All of these options would still give the wave count a good look in terms of proportion.
At this stage, with minor wave B incomplete, it is unclear how long intermediate wave (2) will take.
A note on the last published bearish alternate scenario. With the DJIA and Russell 2000 both now making a new high, a bearish scenario for the S&P looks less likely. It now has an exceptionally low probability.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A break back up above the lilac trend line is very bullish. This line is now weakened because of the break, but it should still be expected to provide some support if price turns down a little.
Price has found support at the 40 week / 200 day moving average.
Upwards movement this week has strong support from volume. This supports the Elliott wave count.
On Balance Volume found support at the two yellow trend lines. This also supports the Elliott wave count.
RSI is not extreme, so there is room for price to rise further.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Some reasonable volume (in relation to recent volume) has returned to this market this week. This supports the Elliott wave count, which sees a third wave up underway that should be supported by volume.
The candlestick pattern at this high is not a reversal pattern. The doji represents only a balance between bulls and bears, not necessarily a reversal. Friday’s candlestick is green and does not close well into the real body of Wednesday’s candlestick, so this is not an Evening Star pattern.
Volume for Friday’s inside day is lighter than the two days prior. This looks like a small correction within a trend, and this fits the Elliott wave count.
ADX is declining, indicating the market is not yet trending.
ATR disagrees as it is mostly increasing, although it declined for Friday. One day is not enough to suggest an end to the trend.
Bollinger Bands also disagree because they are widening, suggesting a trend. Overall, it does look like an upwards trend may be beginning. Some resistance may be expected here about 2175 and next resistance about 2,185. Support for downwards corrections may be expected about 2,120.
On Balance Volume turned downwards for Friday. A new trend line may be drawn across the last three highs for OBV. A breach above this line would be a weak bullish signal. A breach above the two higher lines would be a strong bullish signal.
RSI is not yet extreme. There is room for price to rise further.
Stochastics is only just entering overbought. There is room for price to rise further. If Stochastics is extreme and then exhibits some divergence, it may be indicating a larger correction to unfold.
Price may have reached some resistance at the upper range of Bollinger Bands. Price may now correct lower to find support about the mid line of the Bollinger Bands.
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.
Bearish divergence noted one and two sessions ago may now be resolved by one red doji and a smaller inside day.
Friday’s session exhibits small divergence with the high one and two days ago: price made a lower high, but inverted VIX has made a higher high. This divergence is bearish and indicates weakness in price. It may be followed by one or two days of downwards movement.
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.
The bearish divergence noted two sessions ago may now be resolved by one red doji and one smaller inside day.
The AD line is essentially flat with the high two days ago. This is not enough to indicate any reasonable divergence with price.
BREADTH – MCCLELLAN OSCILLATOR
Click chart to enlarge. Chart courtesy of StockCharts.com.
The McClellan Oscillator is now extreme (below 60). On its own this is not an indicator of a low, but it is a warning that this market is oversold. The McClellan Oscillator today is at -73.44.
On the 21st August, 2015, the McClellan Oscillator reached a similar point of -71.56. Price found a low the next session, 104 points below the closing price of the 21st August. This very extreme reading for the 24th August would have been a strong indicator of a low in place.
On the 11th December, 2015, the McClellan Oscillator reached -80.82. It moved lower the next session to -92.65 and price moved 19 points lower. The extreme reading of 11th December might possibly have led to an expectation of a bigger bounce than the one that occurred, and might have misled analysis into missing the strong fall from 29th December to 20th of January.
The next most recent occasion where this oscillator was extreme was the 8th January, 2016. It reached -66.25 on that date. The low was not found for seven sessions though, on the 20th January 2016, almost 110 points below the closing price of the 8th January. At the low of the 11th February, there was strong bullish divergence with price making new lows and the oscillator making substantially higher lows. This may have been a strong warning of a major low in place.
The most recent occasion of an extreme reading was -75.05 on the 2nd of November. The last low came two days later.
As an indicator of a low this is not it. It is a warning of extreme levels. The next thing to look for would be some divergence with price and this oscillator at lows. Divergence is not always seen at lows, but when it is seen it should be taken seriously. Any reading over 100 should also be taken very seriously.
This indicator will be approached with caution. It is one more piece of evidence to take into account.
Regular bearish divergence noted in last analysis may now be resolved by one red doji and one small inside day.
There is new short term bearish divergence between the highs of the 9th of November and the 11th of November: price has made a lower high, but the McClellan Oscillator has made a higher high. This is small hidden bearish divergence and may be followed by one or two days of downwards movement.
The McClellan Oscillator is not extreme. There is plenty of room for price to rise.
DOW THEORY
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) – closed above this point on the 9th of November, 2016.
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: The transportations indicate an end to the prior bear market. The transportation index confirms a bull market.
This analysis is published @ 03:54 a.m. EST on 12th November, 2016.
Hourly chart updated:
It looks like minor B may be a triangle. It may still morph into a combination though.
When it’s done then a sharp downwards thrust out of the triangle to the target would be expected. The target is the same at 2,121.
Minor C down may take one or three days if intermediate (2) lasts a Fibonacci 3 or 5 days.
It would help if I actually uploaded the chart for you, wouldn’t it.
Once again. DJI all alone in printing a new ATH, so the divergence continues both with the other senior indices and with VIX. See ya tomorrow GW!
Yep! These triangles are an absolute gift to traders and by now every-one on this site should be recognizing them as a bread-and butter trade since you have been pointing them out with great accuracy. We also have the additional confirmation about likely direction with current position above the upper BBs in DJI. These kinds of high probability trades have been few and far between lately so you gotta make hay while the sun shines! 🙂
The market makers are pulling every stunt to keep traders off balance. A favorite scheme of late is to wear out traders keeping the market propped up all day with a sell-off coming into the close. I would be on the look-out for the entirety of a second wave to complete by the end of the trading day with a sharp decline into the close, followed by sky-high futures over-night, trapping bears who were not expecting such a scenario. Remember profits are only profits if they are taken!
Yep, entirely possible.
And a good point to emphasise Verne, a high probability trade, very short term to the downside here folks.
Take the money and run!
…like there’s no tomorrow…! 😉
DJI printing a doji above the BB. It’s been awhile since I have seen a display like that!
If you are trading options, here is a tip to prepare for the coming bear market. As the bear takes hold, you will notice bid/ask on your winning bearish positions becoming ever more ludicrous as market makers attempt to scam the unwary.
Ignore the laughable bid and don’t loose any sleep. Execute your trades using limit orders closer to the ask and you will be happily filled. The market makers are fully aware that the chances are that the options are going to become even more expensive and will be glad to relieve you of them at fairly close to the ask price.
DJI’s extended foray above its BBs suggest that the coming correction may be more violent than folk expect. I do think we will eventually get the Santa Claus rally but probably not before a few riders are forcefully dislodged from the bull’s back.
So far it looks like it may be completing a small red doji, which gapped higher. If so then that is candle 2 of a 3 candle reversal pattern…
The recently newly established VIX uptrend line continues to be respected. A failure to violate it to the downside may be signaling that any upside moves in equities may be limited. Any start of a substantial run high should see this line penetrated to the downside. It does appear at the moment that smart money is getting positioned against what could be broadly seen as a final wave up. A persistent move higher in VIX along with market price could be indication of a terminal wave.
Good morning!
Good morning Verne. It’s all looking good for a pullback on DJIA and S&P for this afternoon and / or tomorrow.
Yes indeed. The reversal is setting up nicely, and I am using bearish call spreads to get positioned for the third up. I think your wave count is right on the money and I hope folk are taking advantage of you advice about joining the trend on the next pull-back. I think we have one more upside jaunt!
So close to the next round number on the Dow. The count seems to support this should provide some sort of short term resistance. Hopefully a good trade set up ahead for us all
Hi Lara,
Hope you are ok. Heard about the earthquake
Thanks, I’m just fine. I slept through it. I’m in Northland and we had no quake that I noticed up here.
Lara – Great to hear that you are safe.
Rajesh
Great to hear you’re ok Lara.
Morning from a very wet London!!
Hope you all have a great weekend 🙂
I spent a week in London on my honeymoon and the weather was fantastic the entire week. I was struck by how many folk later commented on how unusual that was as it rains quite a bit in the city. 🙂