Price has moved strongly lower exactly as the last published Elliott wave count expected.

Summary: Expect now a multi week to multi month pullback has begun. The target zone for it to end is about 2,400 to 2,322.

Expect downwards movement from here to now start to show an increase in momentum. The short term target is at 2,390.

For the very short term, look for a green daily candlestick tomorrow for yet another second wave bounce. If this materialises as expected, use it as an opportunity to enter the downwards trend.

If choosing to trade this correction, remember to always use a stop and invest only 1-5% of equity on any one trade. Less experienced members should reduce equity to only 1-3%.

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

WEEKLY CHART

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Price has indicated that this should be the main wave count.

Primary wave 4 may now be underway.

Primary wave 2 was a regular flat correction that lasted 10 weeks. Given the guideline of alternation, primary wave 4 may most likely be a single or multiple zigzag or a triangle and may last about a Fibonacci eight or thirteen weeks, so that the wave count has good proportion and the right look. So far it has lasted only one week. This is far too brief to be considered complete or even close to complete.

Primary wave 4 may end within the price territory of the fourth wave of one lesser degree. Intermediate wave (4) has its range from 2,400.98 to 2,322.35.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

DAILY CHART

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If primary wave 4 unfolds as the more common single or multiple zigzag, then it should begin with a five down at the daily chart level. This is incomplete.

If minor wave 2 is not over, and if it continues any higher (as per the alternate hourly wave count below), then it may not move beyond the start of minor wave 1 above 2,453.82.

When intermediate wave (A) is complete, then intermediate wave (B) should unfold higher or sideways for at least two weeks.

HOURLY CHART

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The channel is now redrawn as an acceleration channel. Draw it from the end of minor wave 1 to the last low, then place a parallel copy on the end of minor wave 2. The upper edge should provide resistance along the way down. Keep redrawing the channel as price moves lower. When minor wave 3 is complete, then it will be an Elliott channel that shows where minor wave 4 may find resistance.

There are now five first waves down complete. Tomorrow may see another bounce for micro wave 2. Micro wave 2 may not move beyond the start of micro wave 1 above 2,434.90.

This wave count expects to see an increase in downwards momentum.

At 2,392 minute wave iii would reach 1.618 the length of minute wave i.

ALTERNATE HOURLY CHART

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This wave count is now starting to look ridiculous, because the correction of subminuette wave ii is far too large now for this wave count to have the right look. Subminuette wave ii may not move beyond the start of subminuette wave i below 2,405.70.

There is a convention within Elliott wave that when wave B of a potential expanded flat reaches more than twice the length of wave A, the idea of a flat continuing should be discarded based upon a very low probability. That idea may also be useful in thinking about combinations. When wave X within a combination reaches more than twice the length of wave W (or Y), the idea of a combination continuing should be discarded. Here, minute wave x is 2.04 times the length of minute wave w.

This wave count has a very low probability, but at this stage it is the best alternate that I can find at the hourly chart level.

Minor wave 2 may not move beyond the start of minor wave 1 above 2,453.82.

ALTERNATE ELLIOTT WAVE COUNT

WEEKLY CHART

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This idea is new. This alternate wave count allows for an even longer more drawn out end to cycle wave V. It may not end until next year.

The current correction may be one degree lower, intermediate wave (4), which may not move into intermediate wave (1) price territory below 2,193.81.

Intermediate wave (2) lasted 11 weeks. Intermediate wave (4) should be in proportion to intermediate wave (2) for the wave count to have the right look. So far intermediate wave (4) has only lasted one week and is now beginning its second. It is far too early to say it could be complete. At its end, it may total a Fibonacci eight or 13 weeks.

TECHNICAL ANALYSIS

WEEKLY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Volume and On Balance Volume last week suggest upwards movement from here. But the purple trend line for On Balance Volume has only been tested twice before, so its significance is only weak.

ADX, RSI and MACD last week point to lower prices in the next few weeks.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Support about 2,420 has now given way and may now provide resistance.

Volume data from StockCharts for today’s session is suspicious because they give the last two sessions as having identical volume.

There does look to be some support from volume for downwards movement so far.

ADX, ATR, On Balance Volume, and MACD are all bearish. Bollinger Bands may now be beginning to agree.

This chart offers reasonable support at this time to the main Elliott wave count.

VOLATILITY – INVERTED VIX CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.

There is hidden bullish divergence today between price and inverted VIX: inverted VIX has made a strongly lower low, but price has slightly failed to make a lower low. This indicates weakness today within downwards movement from price. It may be followed by a green daily candlestick tomorrow.

BREADTH – AD LINE

Click chart to enlarge. Chart courtesy of StockCharts.com.

With the last all time high for price, the AD line also made a new all time high. Up to the last high for price there was support from rising market breadth.

There is normally 4-6 months divergence between price and market breadth prior to a full fledged bear market. This has been so for all major bear markets within the last 90 odd years. With no divergence yet at this point, any decline in price should be expected to be a pullback within an ongoing bull market and not necessarily the start of a bear market.

There is hidden bullish divergence today between price and the AD line: the AD line has made a new low below the prior low of the 29th of June, but price has failed to make a corresponding new low. This indicates weakness today within downwards movement from price. It may be followed by one or two green daily candlesticks to resolve it.

The mid caps and small caps have made new all time highs along with recent last all time high for large caps. The rise in price is seen across the range of the market, so it has internal strength.

However, there is now some weakness becoming evident within small and mid caps. The number of equities down 20% or more from their all time highs is greatest in small caps, next in mid caps, and least in large caps. This is only an early sign of weakness developing.

Historically, almost every bear market is preceded by at least 4-6 months of divergence with price and market breadth. There is no divergence at all at this time. This strongly suggests this old bull market has at least 4-6 months to continue, and very possibly longer.

DOW THEORY

The DJT today has finally made a new all time high. This confirms a continuation of the bull market.

Nasdaq still has not made a new all time high. Modified Dow Theory (adding in technology as a barometer of our modern economy) indicates some weakness at this time within the bull market, but there is zero indication that it is over.

The following lows need to be exceeded for Dow Theory to confirm the end of the bull market and a change to a bear market:

DJIA: 17,883.56.

DJT: 7,029.41.

S&P500: 2,083.79.

Nasdaq: 5,034.41.

Charts showing each prior major swing low used for Dow Theory are here.

This analysis is published @ 08:09 p.m. EST.