Upwards movement was expected for Tuesday’s session but the target at 2,448 was inadequate. Price moved 6.77 points above the target.
Summary: The bigger picture sees the S&P now in a primary degree pullback to last a minimum of 8 weeks and find support at the maroon channel on the weekly chart.
For the short term, a bounce may be over here at today’s high, or it may continue slightly higher tomorrow to find strong resistance at the upper edge of the base channel on the main hourly chart.
The short term target for a third wave down is still at 2,389.
If price moves above 2,474.93 tomorrow, then use the alternate hourly chart.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Primary wave 3 now looks complete. Further and substantial confidence may be had if price makes a new low below 2,405.70. Fibonacci ratios are calculated at primary and intermediate degree. If primary wave 3 is complete, then it still exhibits the most common Fibonacci ratio to primary wave 1.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 4 should last about 8 weeks minimum for it to have reasonable proportion with primary wave 2. It is the proportion between corrective waves which give a wave count the right look. Primary wave 4 may last 13 or even 21 weeks if it is a triangle or combination. So far it has lasted only one full week.
If primary wave 4 reaches down to the lower edge of the Elliott channel, it may end about 2,325. This is within the range of intermediate wave (4); fourth waves often end within the price territory of the fourth wave of one lesser degree, or very close to it.
The final target for Grand Super Cycle wave I to end is at 2,500 where cycle wave V would reach equality in length with cycle wave I. If price reaches the target at 2,500 and either the structure is incomplete or price keeps rising, then the next target would be the next Fibonacci ratio in the sequence between cycle waves I and V. At 2,926 cycle wave V would reach 1.618 the length of cycle wave I.
DAILY CHART
Click chart to enlarge.
The daily chart will now focus in on the unfolding structure of primary wave 4.
Primary wave 2 was a regular flat correction lasting 10 weeks. Given the guideline of alternation, primary wave 4 may most likely be a single or double zigzag. Within both of those structures, a five down at the daily chart level should unfold. At this stage, that looks incomplete.
While primary wave 4 would most likely be a single or double zigzag, it does not have to be. It may be a combination or triangle and still exhibit structural alternation with primary wave 2. There are multiple structural options available for primary wave 4, so it is impossible for me to tell you with any confidence which one it will be. It will be essential that flexibility is applied to the wave count while it unfolds. Multiple alternates will be required at times, and members must be ready to switch from bear to bull and back again for short term swings within this correction.
Members with a longer term horizon for their trading may wait for primary wave 4 to be complete to purchase stocks or enter the index long.
While intermediate wave (A) is labelled as an unfolding impulse, it may also be a diagonal. Both structures are considered today at the hourly chart level.
Intermediate wave (A) may also be a zigzag if primary wave 4 is to be a triangle. So far it is possible a zigzag downwards could be complete, but it is not deep enough for wave A of a triangle when it is viewed on the weekly chart. And so that possibility will not be considered at this time.
MAIN HOURLY CHART
Click chart to enlarge.
Minor wave 1 downwards looks very clear as a five wave structure.
Minor wave 2 upwards ended just above the 0.618 Fibonacci ratio. Minor wave 3 downwards has now made a new low below the end of minor wave 1, meeting the Elliott wave rule.
Minor wave 3 now exhibits slightly stronger momentum than minor wave 1. A further increase in downwards momentum would be expected.
Within minor wave 3, minute wave ii now shows up on the daily chart as a two green candlesticks so far. At this stage, minute wave ii looks like an expanded flat correction, which are very common structures. Minute wave ii may not move beyond the start of minute wave i above 2,474.93. Minute wave ii should find very strong resistance at the upper edge of the blue base channel, if it gets that high.
If price moves higher tomorrow and moves above the upper edge of the base channel, then the alternate below should be preferred as soon as that trend line is breached and before the invalidation point is passed.
The target expects minor wave 3 to be an extension. When third waves extend, they do so both in price and time. They often show their subdivisions at higher time frames, which is why minute waves ii and iv may show up on the daily chart.
Use bounces as an opportunity to enter the downwards trend. Always use a stop and invest only 1-5% of equity on any one trade.
ALTERNATE HOURLY CHART
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The other possible structure for intermediate wave (A), if it is to be a five, would be a leading diagonal. These are not as common as impulses, so this must be an alternate wave count judged to have a lower probability than the main wave count. However, low probability does not mean no probability. All possibilities should be considered.
Within leading diagonals, the first, third and fifth waves are most commonly zigzags. They may also appear to be impulses. Here, minor wave 1 will fit as a zigzag.
Second and fourth waves must be zigzags. Minor wave 2 may not move beyond the start of minor wave 1 above 2,490.87.
Second and fourth waves within diagonals are usually very deep; a range is given for the common depth.
Minor wave 3 would have to move below the end of minor wave 1 at 2,417.35. Minor wave 3 downwards of a leading diagonal should still exhibit an increase in downwards momentum and should still have support from volume.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Another red weekly candlestick is very bearish. Long upper wicks now on two weekly red candlesticks are bearish. A Bearish Engulfing pattern is the strongest reversal pattern.
On Balance Volume has given an important bearish signal with a break below the yellow support line. This line has been tested five times before and is long held, but it has a reasonable slope. This is a reasonable bearish signal, not a very strong one.
RSI, ADX and MACD all remain bearish.
This weekly chart offers stronger support to the Elliott wave count.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
In the short term, this chart still looks bearish. Resistance for On Balance Volume supports the main hourly Elliott wave count over the alternate.
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 new short term divergence today between price and inverted VIX: inverted VIX has made a new high above the prior high five sessions ago, but price has not. This indicates weakness today within the upwards movement from price, so it is judged to be bearish.
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 no new divergence today between price and market breadth. The rise in price today came with a normal corresponding rise in breadth, but neither have made new highs above the last short term swing high.
DOW THEORY
The S&P500, DJIA, DJT and Nasdaq have all made new all time highs recently.
Modified Dow Theory (adding in technology as a barometer of our modern economy) sees all indices confirming the ongoing bull market.
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.
Published @ 10:55 p.m. EST.
Looks like it might be falling quite hard now Lara.
It’s falling. But not hard enough.
I have a solution that for the short term I think some of you may like.
Today’s small sideways action could be wave (b) of minute ii.
Taking Daniel’s comment below about the expanded flat looking wrong, and he’s right, that C wave was too long.
Nice!
I’m not convinced minuette (b) is over yet though, so this channel may need to be redrawn if it meanders sideways some more. Maybe it’s forming a triangle? Or a combination. Impossible to tell ATM.
It does look like the upper edge of the base channel may be tested.
If its anything like last week, it will meander sideways tomorrow, do a quick pop to the upper base line, then drop – hard.
Eeeeyyyyuuuup!!!! Just like a week ago. Though I’m a bit suspicious that this time, price doesn’t get back to the upper base channel line. We’ll see.
It is turning into quite a cat and mouse game it would seem. It always makes me wonder when they spend an incredible amount of capital propping up the market when there has clearly been a change in trend. I think they are trying very hard to keep traders guessing by keeping the market jacked up during the session to discourage too many traders going short. It will be interesting to see what futures deliver. Considering the low volume that has attended this market’s ascent, they are probably terrified of what would result of it became clear to everyone and his granny that we were headed South- the selling pressure and volume would probably overwhelm the banksters’ ability to superintend a “managed” decline. If we get another tank in futures, I expect we will see a repeat of today with deep pockets stepping in to buy the market off it morning lows, and an attempt to keep it propped up during the session. This may call for a slight adjustment of trading strategy during this fourth wave correction.
FWIW, I think you might have hit the nail on t he head with this alternate. The sideways action since the completion of Minor 1 looks like a period of distribution not accumulation. If that is accurate, the resolution should be downwards and most likely with acceleration.
Yup.
Cool!
They tried to sell the Yen today. No cigar.
They tried to again smash Vix. No cigar.
They tried to fill the gap from the open. No cigar.
I may have an Arturo Fuente lying around that I could perhaps donate? 🙂
You may certainly send it my way. Oh my, its been a long time since I had a fine cigar. Maybe I’ll bring one on my next excursion in the wilderness (the last week of September.) So if you send it my way, it will go to good use.
It’s in the mail bud. Hope you don’t mind it’s a short story cameroon perfecto… 🙂
sorry Rodney,, burn ban out in the woods,,, hee hee
I guess he will have to puff on that baby on the sly eh? 🙂
My estimate is that the burn ban will be lifted by the end of September. Thee should be some good rains in the mountains by then. Plus, the National Forest Service seems to always lift the ban just before rifle deer season opens. They want the hunters spending money and going after the deer.
So, I’ll look for my cigar in the mail. If it does not arrive on time, I’ll make a visit to my local purveyor’s humidor .
I rarely trade VXX but noticed it had a reverse four for one split today. It will be another great candidate for a short volatility trade at a few points during the fourth wave correction.
A most intriguing situation – battle of the dueling gaps. Despite expending an incredible amount of capital, they have so far been unable to close the open gap down from this morning. That is bearish.
A third wave down should have easily taken out the gap from Tuesday’s open. That is in fact one of the ways that third waves announce their arrival- a demolition of pivots. The fact that this has not happened is short term bullish. I think if that gap remains open at the close we are going higher short term.
Either way, we are going to get a violent movement in one direction or the other soon…
Non Farm Payrolls tomorrow should do it.
That’s my tomorrow… Friday. Keep forgetting I’m living in the future down here 🙂
Crazy idea, perhaps totally invalid, but… could this morning’s low be all there is of 4-of-c? And now maybe we’re seeing an ED for 5-of-c?
Atm this move is more sideways than wedge shaped imho (your proposed ED wave 2 has moved far too low (currently almost making a new low))
The move up from this mornings lows looks corective to me and this move down is more impulsive but it is really taking it’s time – maybe this whole move from yesterdays high is wave (x) of a larger complex minor 2 corrective structure (Lara’s alternate hourly count)?
It certainly isn’t acting like a third wave down atm so I’m holding fire on any shorts until a bit more of the wave structure is known.
chart
Possible. Though in that scenario, I expect the upper down channel line to hold. I have a small pilot short, and some stock longs to compensate should prices push up (as they are currently). The wind today is shifty!
If I understand correctly that you mean the upper minor 2 base channel, the scenario as I’ve charted would mean that minor 2 was still in progress so the base channel would be invalid.
I would expect to go above the main count minor 2 high (2474) to the target area as per Lara’s alternate hourly chart.
We might still get a ‘gap and gonner’ down tomorrow. I just don’t like this current action for a 3rd wave at minor degree.
As has been said on here many times (and proven correct), if you need to ask if it is a 3rd wave then it most probably isn’t.
I think you may be considering everything being moved down one degree on my chart (so minute 2 is not yet complete – it is going complex)?
I that scenario you are correct that the upper base channel should hold, but Minor 2 only took 3.5 sessions – if we are still in minute 2 then to complete it needs another abc upwards structure which unless it is very quick will put it out of proportion with minor 2 imho.
If we don’t go above the current minor 2 high then I guess thats what it was.
chart of that idea
I appreciate your comments and your charts, Olga. Thank you!
You’re very welcome 🙂
The hourly chart looks rather bullish through this morning despite the breach of the channel. My best fit channel for the previous low still has us straddling the lower edge. Almost all of the indicies showed bullish hammers this morning, but most critically I see RUT hitting an extremely significant resistance point around 1370-1375, and DJT posted a long red candle. As these have been the weakest indicies and have portended future downturns, I am still slightly bearish although I am quite worried about the lack of downward acceleration from this morning.
Edit: @2442.51ish (todays low) I’m going 50% short with a stop at 2448.88ish (last swing high).
If it looks like it will be a 3 wave down I’ll turn it into a quick scalp
I’ll likely be in on that action. I’m losing confidence by the minute that this is in fact a 4 of C; the dislocation out of the C channel is a bit much, and the more I look, the more I can buy that C is a complete 5. This consolidation being a 2 of a new 5 wave down (minuette 2 of minute 3 of minor 3 I believe) is my current primary view. I wouldn’t be surprised by this sideways chop though continuing for a full day+ before price drops out of it, though.
Yeah I agree – the action is a bit sluggish atm
I’m still suspicious that we are now seeing a “real” 4 of this 5 wave C, one that will match the rather large in time 2 wave, and set us up for the final 5 up to the 2462.5 area, where C will end. I’m staying very cautious re: any positional shorts here, yet.
Do notice the almost perfect structural symmetry we’ve had for the last 6 days, with the 6 days prior to that. It’s uncanny how identical the general market action has been. I guess investor psychology is “the same” and repeating itself. At any rate, if it continues, then yes, this the 4 and we’ll get a 5 pop and then a turn. In fact, if you look at late Aug 14/early Aug 15, you could say “we are here”!!! And see how, if the future continues like the past, where we are headed, generally. It will break, soon, but until it does, it’s meaningful to me.
I note that this current pullback is very close in price to 1.618 of C wave 2 at this point. But if this is a 4, the move so far looks rather incomplete; another leg down for some kind of ABC structure in general would seem likely. And it can do down ALOT and still not violate the top of 2. Enough to suck in a lot of fresh shorts, including possibly even me. Then boom, back up above the current top of C. A possibility to consider!
Price has found support at the upper (c) wave base channel – which is pretty standard 4th wave behaviour – if it drops through that I’ll start getting more interested.
This move is not channelling very well now which makes me think it is not part of (c) but sometimes the S&P does not play nicely with channels.
Nice chart, thanks
I guess it depends how you draw it but I’ve got price tagging the underside of the channel on the 5 min chart.
Of course – the S&P is an absolute master when it comes to falling out of it’s channel, tagging the underside, then jumping straight back into it.
Indeed! And a massive amount of capital is being expended this morning to ensure that exactly that is what happens again…will they succeed?
Still no real selling pressure so I suspect lots of folk are intently watching…
IKR! One of it’s more annoying quirks
At this point in the trading day, 10 AM EST, the SPX is at 2445 and has not yet properly breached the yellow channel lines of minute ii as Lara has drawn on the preferred hourly count. A full and proper breach must be below and not touching the channel line. We may see such a breach in the next few hours. But we have not seen it yet in the first hour. In fact, the first hourly candle is a bullish hammer.
The second hourly candle of the day has begun by not touching the channel. It needs to move downward to give confidence that minute ii is over.
We also need a new low for the day below 2441.42 to add to the confidence minute ii is over. At that point I would be willing to say, the bears have wrestled control back from the bulls.
Yep! It is a real dog-fight, with the bulls hanging on for dear life. Unfortunately for them, the die has been cast…
It is probably too late to get those September VIX 10.50 calls for anywhere near 2.80 again at this point. I think we should see a double by close of today and I will be rolling into higher strike prices on any future bounce on the way down….
It sure is starting to look like yesterday was indeed quite the dead cat bounce.
I have to say, I am REALLY going to enjoy seeing the VIX short sellers squirm when it finally dawns on them exactly what is happening…. lol!
I should have added to my positions yesterday but I don’t want to be too avaricious.
Already my .20 basis cost call contracts are looking mighty fine! Whew! That ramp yesterday had be worried there for awhile…#@$%%&* banksters! 🙂
I may have spoken too soon about futures, since I last checked they have headed more decisively South….
As anticipated, they ramped the pairs trade and crushed the Yen and volatility and really juiced equities. The move up came right back to the underside of a number of broken wedges but frankly was higher than I expected. I have to say I am also leaning toward the leading diagonal possibility as that long lower wick on Friday seemed to be an interim bottom of sorts and would be consistent with completion of an initial impulse for minor one. I read somewhere on the subject of diagonals that they unfold when an impending or underway trend change is being resisted and that would certainly be the case in this instance. If we are about to see a third wave down, we should get a most robust move up in VIX as short positions are hastily unwound. If it is a LD, the process will be more graduated and take place over a number of days with prices inching higher as the diagonal develops.Either way the downtrend would be confirmed with a reclaim of the VIX 200 dma, which based on pre-market activity is a foregone conclusion, So far futures not favoring the start of a third wave but then they have not been particularly predictive of late. I am still holding two DIA 217.5 calls expiring Friday and will hold for the time being. Today should be most interesting!
Looking at the charts, I don’t like the main hourly count as the C wave of expanded flat is already 1.91 x A wave and more than .618 overshot the A wave. With respect to alternate, the C wave is just over 2.618 the A wave.
Think reasonable conclusion is that as per diagonal idea we have had a good 3 waves down to last low. That was the easy part of primary 4 correction. Now it gets tricky as so many possibilities including double zig-zag and combinations. Who knows.I think we get a pullback today on order of 7-12 S&P points but looking for possible more upside to 2466 in next 24 hours. Just became a lot harder to press the shorts. Likely options expiring in October would be a better idea.
Based on premarket futures if to open now, we would be dropping out of orange channel so that would represent a complete 3 wave up from low. Many possibilities how it could play out now. This could just be first part of diagonal of minor 2 or an X or W wave of alternate structure.
On the five min chart looks like it could be 4 of c we were looking for yesterday
Gotta get this in quick to be #1. Now I will go read the analysis and commentary. It will be great as always, I’m sure.
I was correct. Great analysis and commentary Lara.
🙂 You’re most welcome Rodney