For the short term, downwards movement was expected for Thursday’s session. An inside day completes as a red daily candlestick, mostly meeting expectations but not as clear as hoped for.

Summary: With the last wave up now looking very much like a three, have some confidence that primary wave 4 is underway. Look for price to move either sideways or lower with a lot of overlapping choppy movement for a few weeks.

In the short term, a quick spike up to just above 2,467.57 may be followed by a turn down to new lows.

Last monthly and weekly charts are here. Last historic analysis video is here.

ELLIOTT WAVE COUNT

WEEKLY CHART

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Primary wave 3 now looks complete. Further and substantial confidence may be had if price makes a new low below 2,405.70, which is the start of minor wave 5 within intermediate wave (5). A new low below 2,405.70 may not be a second wave correction within an extending fifth wave, so at that stage the final fifth wave must be over. 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 may be completing its fourth week.

If primary wave 4 unfolds as a single or double zigzag, then it may find support about the lower edge of the maroon Elliott channel. If it is a triangle or combination, it may be more shallow, ending about mid way within the channel.

At this stage, the analysis gets complicated because there are several possible structures that primary wave 4 may be. The ideas for a triangle, combination, double zigzag, and single zigzag will be separated out into different daily charts in order for members to have a clearer picture of how price may behave for each. It is still impossible for me to tell you with any level of confidence which structure primary wave 4 may take, so all possibilities must be considered. I can only say that a single or double zigzag, or a triangle, would be most likely to exhibit good alternation with the flat correction of primary wave 2.

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 – TRIANGLE

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This first daily chart will illustrate how price might move if primary wave 4 unfolds as a triangle.

Intermediate wave (B) may possibly be complete at last week’s high. If it is complete there, then it would be a 0.86 length of intermediate wave (A), which is very close to the common range for triangle subwaves of about 0.8 to 0.85.

It is still possible that intermediate wave (B) may continue higher as a double zigzag. One of the five sub-waves of a triangle should be a more complicated multiple; most commonly that is wave C, but it may be any sub-wave. If intermediate wave (B) does continue higher, it may make a new all time high as in a running triangle. For the short term, if price makes a new high above 2,480.38, then a double zigzag continuing higher for intermediate wave (B) would be charted for the main daily wave count.

The triangle may still last a total of at least eight weeks, and possibly longer.

Both intermediate waves (A) and (B) look like three wave structures.

If intermediate wave (B) is over, then intermediate wave (C) may be more complicated and time consuming than either of intermediate waves (A) or (B). Intermediate wave (C) may not move beyond the end of intermediate wave (A).

DAILY CHART – COMBINATION

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A combination for primary wave 4 would still offer some alternation with the regular flat of primary wave 2. Whenever a triangle is considered, always consider a combination alongside it. Very often what looks like a triangle may be unfolding or may even look complete, only for the correction to morph into a combination.

There may only be one zigzag within W, Y and Z of a combination (otherwise the structure is a double or triple zigzag, which is very different and is considered below). At this stage, that would be intermediate wave (W), which is complete.

Combinations are big sideways movements. To achieve a sideways look their X waves are usually deep (and often also time consuming) and the Y wave ends close to the same level as wave W.

Here, intermediate wave (X) is very deep.

Intermediate wave (Y) may be a flat correction or a triangle. Within intermediate wave (Y), minor wave B may make a new high above the start of minor wave A as in an expanded flat or running triangle; this may include a new all time high. There is no upper invalidation point for a combination.

While intermediate wave (Y) may be a triangle, it is much more likely to be a flat correction. The combination of one zigzag and one flat within a combination is the most common by a very wide margin. A flat correction should be expected for intermediate wave (Y).

Within a flat correction, minor wave A must subdivide as a three, most often a zigzag and minor wave B must then retrace a minimum 0.9 length of minor wave A. Thereafter, minor wave C should move below the end of minor wave A. This structure may take another few weeks to complete.

DAILY CHART – DOUBLE ZIGZAG

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While combinations and double zigzags are both labelled W-X-Y, they are very different structures.

Double zigzags (and very rare triples) belong to the zigzag family of corrections. Combinations are more closely related to flats (these are sideways movements). Double zigzags have a strong slope, as do single zigzags. The second zigzag exists when the first zigzag does not move price deep enough; its purpose is to deepen the correction.

To achieve a strong slope the X waves of double zigzags (and the very rare triple zigzags) are almost always brief and shallow. Here, intermediate wave (X) is neither brief nor shallow reducing the probability of this wave count.

Within the second zigzag, minor wave B may not move beyond the start of minor wave A.

It would still be possible for this wave count for primary wave 4 to end about the lower edge of the maroon channel on the weekly chart.

A channel is added today about intermediate waves (W) and (X). For all three ideas at the daily chart level, if my labelling is correct, then any upwards movement at this stage should find very strong resistance at the upper edge of this channel. This channel is copied over to the hourly chart below.

HOURLY CHART

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This hourly chart will suffice for all three daily charts above. All three daily charts see the last upwards movement as a complete zigzag for intermediate wave (B) or (X).

With a three down (labelled intermediate wave (A) or (W) ), and now a three up complete, some reasonable confidence may be had that this market is in a larger correction which is incomplete.

Minor wave B may have ended just above the 0.618 Fibonacci ratio of minor wave A, a common point for B waves to end. There is no Fibonacci ratio between minute waves a and c.

A small channel in pink is drawn about minor wave B. This small channel was breached by sideways movement during Thursday’s session. This is an indicator that the upwards zigzag labelled minor wave B is over and the next wave has begun. The next wave is expected most likely to be the start of minor wave C, but it may also be an X wave within a double zigzag if minor wave B is not over.

If minor wave B continues higher as a double zigzag (a fairly common structure), then it may not move beyond the start of minor wave A above 2,480.38.

If minor wave B is over, then tomorrow minute wave ii may not move beyond the start of minute wave i above 2,469.64. Minute wave ii is labelled as an incomplete flat correction. To avoid a truncation and a very rare running flat minuette wave (c) should end above the end of minuette wave (a) at 2,467.57 and below 2,469.64.

How low the next wave goes should offer some clues as to the larger structure of primary wave 4.

ALTERNATE WAVE COUNT

DAILY CHART

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The first three daily charts all consider the possibility that the first wave down was a complete three. This alternate considers the possibility that a five down is still underway.

If intermediate wave (A) is an incomplete five down, then the larger correction for primary wave 4 would be a single zigzag.

Intermediate wave (A) may not now be an impulse, because the first wave down is clearly a three and not a five. It may be a leading diagonal.

Leading diagonals have sub-waves one, three and five that most commonly subdivide as zigzags, although they may also be impulses.

Within diagonals, the second and fourth waves must be zigzags and are commonly from 0.66 to 0.81 the length of the prior wave. Here, minor wave 2 would now be 0.86 the length of minor wave 1, not too much deeper than the common length.

Minor wave 3 must make a new low below the end of minor wave 1 below 2,417.35. It would most likely be shorter than minor wave 1, which was 73.52 points in length, as contracting diagonals are the most common variety.

Minor wave 2 may not move beyond the start of minor wave 1 above 2,490.87.

HOURLY CHART

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Subdivisions at the hourly chart level are the same for all wave counts. Only the degree of labelling and the larger structure differ. All wave counts see a zigzag complete downwards to the last low, and now a zigzag upwards complete.

The most common type of leading diagonal is a contracting variety. In a contracting diagonal the third wave should be shorter than the first wave and the fifth wave shorter still, so that the third wave is not the shortest. If this leading diagonal is contracting, then minor wave 3 must move below the end of minor wave 1 at 2,417.35, and must end above 2,406.84 to be shorter than minor wave 1. The target would meet these conditions.

TECHNICAL ANALYSIS

WEEKLY CHART

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

An upwards week has a long lower wick and slight support from volume. In the short term, it is entirely possible that this upwards movement is not over.

However, volume remains relatively light, relative to recent downwards weeks. There is still more support for downwards movement than upwards, so it still looks like a consolidation may be continuing.

Consolidations do not move in straight lines. Price whipsaws from support to resistance, and back again. At this stage, it looks like that is what price may still be doing.

ADX had been extreme for a long time and is now declining. The black ADX line is now declining but has not yet been pulled down below both directional lines, so the consolidation or pullback may be expected to continue.

DAILY CHART

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

Only if an upwards breakout to a new all time high is seen, which very importantly should have support from volume, would the view that price is consolidating have to change.

Price again found support about 2,460. An inside day closes red with the balance of volume downwards. Volume shows a slight increase. Again, there is more support recently for downwards movement than upwards; the volume profile remains bearish.

A new small resistance line is added to On Balance Volume.

One of the best techniques for trading a consolidation is to use resistance and support along with Stochastics to indicate when price may turn. This is a high risk strategy though: price can overshoot resistance or support before turning, and Stochastics is useful but not as an exact technique for timing a turn. Losses can be large but should be few while profits may be many and small. Only the most experienced traders should attempt it.

At this stage, it looks like price may have turned just below resistance with Stochastics just reaching into overbought. The risk here is price may move higher to resistance about 2,485 and Stochastics may dip again into overbought before the upwards swing is over and the next swing down begins.

It is absolutely essential that good risk management and money management techniques are used. Anyone trading a consolidation without using stops is inviting financial losses.

Please use my two Golden Rules of risk management: always use a stop and invest only 1-5% of equity on any one trade.

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 no new divergence today between price and inverted VIX.

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 the AD line.

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 @ 10:07 p.m. EST.