A little upwards movement invalidated the hourly Elliott wave count.
Summary: Some downwards movement to find support at the lilac / purple trend line is expected, about 2,211. If this target is wrong, it may be a little too low. Use the trend line as a preference. If this correction ends in a total Fibonacci 34 sessions, it may end on the 2nd of February. Thereafter, the bull market should resume.
This bull market is strong and healthy. Use this correction as another opportunity to join the trend.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
MAIN ELLIOTT WAVE COUNT
Intermediate wave (4) is exhibiting alternation with intermediate wave (2). Intermediate wave (2) is a double zigzag and intermediate wave (4) is an incomplete expanded flat.
Along the way up to the final target at 2,500 a more time consuming fourth wave correction for primary wave 4 would be expected for this wave count.
The purple trend line is the most important piece of technical analysis on all charts. Draw it carefully from prior all time highs of 2,134.28 on the 21st of May, 2015, to 2,193.81 on the 15th of August, 2016. Extend it out. Daily charts are on a semi log scale.
The correction for intermediate wave (4) should end if price comes down to touch the purple trend line.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,193.81.
At this stage, intermediate wave (4) has lasted 25 sessions. With the very slow rate of this correction it may now be possible for it to continue for another 9 sessions to total a Fibonacci 34. This would see it end on the 2nd of February.
If the target calculated is wrong, it may be too low. Price may find strong support just above the target at the purple trend line.
Minor wave C must complete as a five wave structure. It is extremely likely to make at least a slight new low below the end of minor wave A at 2,233.62 to avoid a truncation and a very rare running flat.
Within minute wave iii, minuette waves (i) and (ii) may now be complete. Minuette wave (ii) may not move beyond the start of minuette wave (i) above 2,278.05.
When minute wave iii is over, then minute wave iv should unfold sideways and may not move into minute wave i price territory.
Minuette wave (ii) is very deep. For this hourly wave count, it is concerning that minor wave C is taking too long to get underway because it should have begun by now to move price lower with an increase in downwards momentum.
This wave count remains viable.
For this wave count, minor wave B is a 1.10 length of minor wave A. This is longer than the requirement for an expanded flat. So if this hourly wave count is correct, then that is what intermediate wave (4) may be.
ALTERNATE HOURLY CHART
Sideways movement this week may have been a continuation of minor wave B. This would explain the choppy overlapping nature of price action for the week.
Minor wave B may be a complete regular contracting triangle. This movement meets all Elliott wave rules for this structure. Within the triangle, minute wave a is very long but this does not look too abnormal. The triangle is supported by MACD hovering about zero this week.
Minor wave B at its end would be only a 0.99 length of minor wave A. This is longer than the minimum requirement for minor wave B within a flat of 0.90, and less than the requirement of 1.05 for an expanded flat. A regular flat may be unfolding for intermediate wave (4).
No target is given here for minor wave C, as using the 1.618 Fibonacci ratio to minor wave A results in a target which is too far below the purple trend line. For this wave count, the trend line should be used rather than a price target.
ALTERNATE ELLIOTT WAVE COUNT
What if the main wave count is wrong? What if cycle wave V is complete already? Does that fit?
Yes, it does. But this wave count has very little support from classic technical analysis.
If price makes a new low below 2,193.81, then a variation of this wave count would be the new main wave count. At that stage, the degree of labelling within cycle wave V would be moved all down one degree. >Only primary wave 1 of cycle wave V may be over.
I am discarding the idea that primary wave 5 may continue much further. It cannot because the core Elliott wave rule stating a third wave may not be the shortest within an impulse must be met. Here, primary wave 3 is shorter than primary wave 1 by 60.94 points. Primary wave 3 may not be the shortest wave, so primary wave 5 is limited to no longer than equality in length with primary wave 3 at 2,286.92. So far primary wave 5 is 4.82 points shorter than primary wave 3, so thus far the rule is met.
Only a new low below 1,810.10 could finally confirm this wave count. At that stage, downwards movement could not be a second wave correction within cycle wave V, so cycle wave V would then have to be over. Only at that point would price indicate a multi generational trend change has arrived. Dow Theory would also need confirmation from DJIA and DJT to confirm such a large trend change.
When cycle wave V is over, it would complete a Grand Super Cycle wave. A trend change from bull to bear would be expected, a once in a multi generational bear market. This wave count expects to see a huge market crash, bigger than the Great Depression. The size of this trend change absolutely requires price confirmation and technical indication before any confidence at all could be had in a wave count such as this.
This wave count does not have support from Lowry’s. They see an increase in market breadth is currently supporting the rise in price. Normally, market breadth begins to diverge from price 4-6 months prior to a final high and a change from a bull to a bear market. There is no divergence at all at this point in time.
ADX at the monthly chart level does not support this wave count. This trend is not extreme: ADX is below 20 and increasing at the monthly chart level. At market highs ADX is most often extreme (not always, it wasn’t in September 2007).
The only piece of technical analysis I can see at this stage, which supports this wave count, is strong multi month divergence with RSI at the monthly chart level. This is common before a turn from a bull to bear market. However, this divergence can persist for very long periods of time. RSI and price exhibited divergence, for 45 months, prior to the high of March 2000 going back to June 1996. This is a warning of a coming bear market, but it is not particularly useful for timing.
At this time, price and RSI at the monthly chart level exhibit divergence back to November 2013, a period now of 37 months.
This wave count is just one possibility in the world of many possibilities. It does not have a good probability, I would judge it to be as low as 5-10%. However, low probability does not mean it cannot happen. Sometimes low probability outcomes do occur; when they do, they are never what was expected. This wave count is published in the spirit of always considering possibilities, with the knowledge that nothing is impossible.
Click chart to enlarge. Chart courtesy of StockCharts.com.
A very small range inside week completes a small green doji candlestick. Price is consolidating.
A decline in volume this week supports the idea that price is consolidating. This supports the main Elliott wave count that sees a correction unfolding for intermediate wave (4).
On Balance Volume this week has come down to the long held yellow support line. This line goes back to September 2015 and it has been tested four times so far. This would be the fifth test. This line has good technical significance. It looks like OBV may be breaking below this line, but there is a little leeway in exactly how this line is drawn, so a clearer break is required before it may be read as a bearish signal.
A break below the long yellow support line by OBV would be a good bearish signal supporting the main Elliott wave count.
RSI is not extreme. There is room for the upwards trend to continue.
ADX is still increasing and is above 15 indicating the market may be in the early stages of an upwards trend.
Click chart to enlarge. Chart courtesy of StockCharts.com.
A small real body is almost a doji candlestick for Friday, which moved price higher. There was some increase in volume to support the rise in price. It still looks though like a bull flag pattern is unfolding. The flag pole is short, only 48.48 points, so a target using the measured rule would be about 2,323.
This consolidation is bringing ADX back down from extreme (it reached just above 40). ADX is declining as price moves sideways, indicating a consolidating market here. ATR agrees as it is flat to declining.
On Balance Volume is tightly constrained; it has not broken out yet. The upper purple trend line may halt the rise in price for Friday here.
RSI exhibited divergence with price at the last high. This supports the Elliott wave count that sees the last high as part of a B wave. B waves often exhibit weakness.
Stochastics is just returning from overbought. Some downwards movement to support while Stochastics moves towards oversold would be a reasonable expectation.
After a break above the purple line (see the weekly chart), it would be typical behaviour of price to turn slowly and retest the line for support then to move up and away.
Bollinger Bands remain very tightly contracted for a reasonable time here. The lower edge may provide some support for price if it moves lower. Look out for volatility to return to the market (it may be explosive) after a long period like this of tight contraction.
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 mostly working to indicate short term movements spanning one or two days. While this seems to be working more often than not, it is not always working. As with everything in technical analysis, there is nothing that is certain. This is an exercise in probability.
Short term bullish divergence noted in yesterday’s analysis has now been followed by one day of upwards movement. The divergence may be resolved here, or it may require one more day of upwards movement to resolve it.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
Hidden bullish divergence noted in last analysis has been followed by one upwards day. The divergence may now be resolved, or it may require one more upwards day to resolve it.
Lowry’s analysis at the end of this week sees continued health in terms of market breadth. This bull market is ageing but still most likely has some months to run.
The DJIA, DJT, S&P500 and Nasdaq have made new all time highs in December of 2016. This confirms a bull market continues.
This analysis is published @ 01:16 a.m. EST on 21st January, 2017.
I like the fit and symmetry of this triangle count for minor B.
If this is correct then it may be over.
But it’s also possible that minute d has moved lower today for a barrier triangle, although then the upper trend line would be slightly overshot within minute d which wouldn’t look quite right. Triangles normally adhere very well to their trend lines, but very occasionally they can have little overshoots.
It looks like the triangle should be complete. I’d have some confidence in that view if price can make a new low below 2,554.25.
Looks good and explains the meandering well. The market is really testing the patience of traders these days. A good time to exercise patience and discipline in waiting for the wave development to become clearer. I have a feeling the final move down for C is going to be swift and sudden. Another green candle for VIX today but well off the day’s high so the cat and mouse game continues…
On Balance Volume now has support and resistance lines going back to early December 2015. That’s a long consolidation. I’ll be watching OBV closely. A breakout there might precede the next direction for price.
Interesting goings on with the major indices. DJI took out its Dec 30 low on January 19 but SPX did not. VIX of course made a corresponding lower high (as it reflects SPX put call ratios) but we have an ongoing price action divergence with these two indices. It will be interesting to see when SPX takes out 2233.62 and confirms DJI’s lower low.
Call me a conspiracy theorist. I am convinced that the FED and hedge funds have an algo designed specifically to trade the market the exact opposite of EWI wave counts! Man, it is amazing how reliable this thesis has proven to be. Looking for price to head toward that purple break-out trend-line Lara has sagely alerted us to. It should be very good opportunity for a long trade, and actually the first long position I will be taking with any confidence in a very long time indeed. Lara knows her stuff folk. Pay attention! 😀
Okay, as you wish. “You are a conspiracy theorist.”
I too have been waiting for the purple trendline. But I think I will start scaling in for long positions around 2230. All we need to do is make a new low below Minor A. We may not make it to 2220. I definitely think 2214 will hold.
I think it depends on what degree this fourth wave is- some are seeing it one degree higher than Lara’s count. My own suspicion is that the market is likely to do something to shake loose a few bullish traders before it resumes the march higher, so I would not be surprised to see it temporarily breach a well-watched support area before reversing higher. I will be looking for an upper BB penetration by VIX as that has of late been one of the few reasonably reliable reversal signals left.
That is right. In fact, if we can get a VIX close above the upper BB with an NYMO close below its lower BB and then both close inside their BBs, we will have a quite reliable indicator. Mr. Market doesn’t make it easy for us does he?
He never does.
There was a time when these long sideways movements with tightly contracted BBs would see a fairly violent move out of the price range. The last few times we just did not see that develop and sideways price action turned out to be an extended period of consolidation ahead of a run higher. This has got be be one of the slowest developing C waves I have ever observed. It really is starting to make me wonder about why it is so slow in unfolding.
Maybe because it wasn’t a C wave, it was a B wave triangle?
That makes so much more sense.
I’m discarding the main hourly in favour of the triangle.
And that is why I hate B waves! Toughest of all to trade.
Good morning Lara,
I greatly appreciate your work and have learned much following all the comments that have been posted.
I have done a survey of your last posted monthly chart, looking specifically at the lengths of the cycles identified. It appears Cycle 1 lasted approximately ( 26 months), Cycle 2 (5 months), Cycle 3 (38 months) and Cycle 4 (14 months). We are currently in the 11 month of Cycle 5. If this is correct, and if Cycle 5 approximates the length of Cycle 1, shouldn’t we have at least another 14-15 months to go before completing Cycle 5? If so, is it possible that your alternate count represents a completed Primary 1 and are within a primary 2 correction?
Thanks for your thoughts.
I have cycle I ending with a truncated fifth wave, so that changes the length and duration.
Cycle I = 28 months
Cycle II = 3 months
Cycle III = 37 months
Cycle IV = 15 months
Cycle V so far = 11 months (the 11th month being January)
So yes, I’d expect Cycle V to continue for at least another ten months. That works for the main wave count, and yes, for the alternate if the degree of labelling within cycle V is moved down one degree.
Thank you for your analysis.
I notice you haven’t considered any possibility of upward, even in your two alternates of hourly and weekly count. It looks you are quite confident for the market going downward in next week. I am wondering if (from Elliott Wave point of view) the market doesn’t has upward possibility which is worth for us to have an alternate for next week. Is it possible that the market (SPX) goes to 2300+ first, and then goes down for correction? If it has worth possibility, what is its wave count?
I got my last short term update from EWI on Friday and for DJI they see a fourth wave complete at the last low and expect indices to go on to new highs, with the exception of NDX 100, which they have completing an ending diagonal at 5085.35.
SVXY made a new 52 week high in another startling diversion from the major indices which have traded sideways for weeks now. It appears absolutely no one expects this market to decline anytime soon. I remain long volatility as I have not ever seen this level of market complacency- ever! Frankly this market I find a very scary place at the moment, Let’s hope I am wrong for all those who are long sakes. 🙂
I am confident the market will move lower, but I could be wrong.
Trying to find a bullish EW count this is what I can come up with. I wouldn’t want to see intermediate (4) over at the low labelled minor 4, it would be grossly disproportionate to intermediate (2). That doesn’t mean it’s not possible, but IMO it has a very low probability
If intermediate (3) is incomplete then minor 5 may be extending. This is the best fit I can see for a very bullish idea.
Thank you, Lara.
OillI have to agree with Laura. On the more humorous side, EWI’s count of a completed fourth wave is almost a certain contrary indicator the decline iís not done. I jest only in part. It is absolutely uncanny how price almost always seem to do the exact opposite of what their wave counts suggest. I thik Janet is reading their stuff, as well as past FED presidents. 😉
Haha Verne, epic call!! They are reading EWI, Dent, Casey, Stansberry, et al!
I kid you not Chris. I started to get so frustrated with Steve H’s wave counts that I determined the only intelligent thing to do was trade the exact opposite of what his counts called for and did exactly that. Sure enough, I finally started to actually make some winning trades but only as a result of using them as a contrary indicator. It was just about around that time that I found Lara’s website and boy, was I a happy camper!
Sorry about the mis-spelled name Lara. That is what happens when I try to think and type at the same time…. 🙂
🙂 No worries. So long as you don’t call me Janet, I’ll be just fine