Upwards movement was again expected. The first target was reached and passed. The second target zone is not yet met.
The AD line today gives a strong signal.
Summary: The target is now at 2,751. Strong bullish divergence between price and the AD line, reasonable divergence between price and inverted VIX, and now a bullish signal from On Balance Volume all support the wave count.
Always practice good risk management. Always trade with stops and invest only 1-5% of equity on any one trade.
New updates to this analysis are in bold.
The biggest picture, Grand Super Cycle analysis, is here.
Last historic analysis with monthly charts is here. Video is here.
An alternate idea at the monthly chart level is given here at the end of this analysis.
An historic example of a cycle degree fifth wave is given at the end of the analysis here.
MAIN ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Cycle wave V must complete as a five structure, which should look clear at the weekly chart level. It may only be an impulse or ending diagonal. At this stage, it is clear it is an impulse.
Within cycle wave V, the third waves at all degrees may only subdivide as impulses.
Intermediate wave (4) has breached an Elliott channel drawn using Elliott’s first technique. The channel is redrawn using Elliott’s second technique as if intermediate wave (4) was over at the first swing low within it. If intermediate wave (4) continues sideways, then the channel may be redrawn when it is over. The upper edge may provide resistance for intermediate wave (5).
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,193.81. However, it would be extremely likely to remain within the wider teal channel (copied over from the monthly chart) if it were to be reasonably deep. This channel contains the entire bull market since the low in March 2009, with only two small overshoots at the end of cycle wave IV. If this channel is breached, then the idea of cycle wave V continuing higher would be discarded well before the invalidation point is breached.
At this stage, it now looks like intermediate wave (4) may be continuing further sideways as a combination, triangle or flat. These three ideas are separated into separate daily charts. All three ideas would see intermediate wave (4) exhibit alternation in structure with the double zigzag of intermediate wave (2).
A double zigzag would also be possible for intermediate wave (4), but because intermediate wave (2) was a double zigzag this is the least likely structure for intermediate wave (4) to be. Alternation should be expected until price proves otherwise.
DAILY CHART – TRIANGLE
Click chart to enlarge.
This first daily chart looks at a triangle structure for intermediate wave (4). The triangle may be either a regular contracting or regular barrier triangle. Within the triangle, minor waves A, B and C may be complete.
If intermediate wave (4) is a regular contracting triangle, the most common type, then minor wave D may not move beyond the end of minor wave B above 2,801.90.
If intermediate wave (4) is a regular barrier triangle, then minor wave D may end about the same level as minor wave B at 2,801.90. As long as the B-D trend line remains essentially flat a triangle will remain valid. In practice, this means the minor wave D can end slightly above 2,801.90 as this rule is subjective.
When a zigzag upwards for minor wave D is complete, then this wave count would expect a final smaller zigzag downwards for minor wave E, which would most likely fall reasonably short of the A-C trend line.
If this all takes a further two weeks to complete, then intermediate wave (4) may total a Fibonacci 13 weeks and would be just two weeks longer in duration than intermediate wave (2). There would be very good proportion between intermediate waves (2) and (4), which would give the wave count the right look. However, two more weeks at this time does not look like it may be long enough for a triangle to complete. It may not exhibit a Fibonacci duration.
There are now a few overshoots of the 200 day moving average. This is entirely acceptable for this wave count; the overshoots do not mean price must now continue lower. The A-C trend line for this wave count should have a slope, so minor wave C should now be over.
Within the zigzag of minor wave D, minute wave b may not move beyond the start of minute wave a below 2,553.80.
HOURLY CHART
Click chart to enlarge.
Minor wave D upwards should subdivide as a zigzag. Within the zigzag, minute wave b now shows up on the daily chart as a large red daily candlestick. This would give minor wave D an obvious three wave look on the daily chart, which should be expected.
Minute wave b subdivides as a completed double zigzag. Minute wave c has now passed equality in length with minute wave a; they may not exhibit a Fibonacci ratio.
Minute wave c must subdivide as a five wave structure, unfolding as an impulse and not a diagonal. Within the impulse, minuette wave (iii) is shorter than minuette wave (i). This limits minuette wave (v) to no longer than equality in length with minuette wave (iii) at 2,770.94, so that minuette wave (iii) is not the shortest actionary wave within the impulse and the core Elliott wave rule is met.
Because minuette wave (iii) exhibits no Fibonacci ratio to minuette wave (i), it is more likely that minuette wave (v) may exhibit a Fibonacci ratio to either of minuette waves (i) or (iii). A target is calculated using a Fibonacci ratio to minuette wave (i).
If minuette wave (iv) continues further, then it may not move into minuette wave (i) price territory below 2,665.45.
DAILY CHART – COMBINATION
Click chart to enlarge.
Double combinations are very common structures. The first structure in a possible double combination for intermediate wave (4) would be a complete zigzag labelled minor wave W. The double should be joined by a three in the opposite direction labelled minor wave X, which may be a complete zigzag. X waves within combinations are typically very deep; if minor wave X is over at the last high, then it would be a 0.79 length of minor wave W, which is fairly deep giving it a normal look. There is no minimum nor maximum requirement for X waves within combinations.
The second structure in the double would most likely be a flat correction labelled minor wave Y. It may also be a triangle, but in my experience this is very rare, so it will not be expected. The much more common flat for minor wave Y will be charted and expected.
A flat correction would subdivide 3-3-5. Minute wave a must be a three wave structure, most likely a zigzag. It may also be a double zigzag.
The subdivisions within minute waves a and b of minor wave Y are adjusted slightly today. This makes a difference to the minimum requirement for minute wave b and the target for it to end.
Minute wave b must now reach a minimum 0.90 length of minute wave a. Minute wave b must be a corrective structure. It may be any corrective structure. It may be unfolding as a zigzag. A target is calculated for it to end. Within minuette wave (b), no second wave correction may move beyond its start below 2,586.27.
The purpose of combinations is to take up time and move price sideways. To achieve this purpose the second structure in the double usually ends close to the same level as the first. Minor wave Y would be expected to end about the same level as minor wave W at 2,532.69. This would require a strong overshoot or breach of the 200 day moving average, which looks unlikely but does have precedent in this bull market.
DAILY CHART – FLAT
Click chart to enlarge.
Flat corrections are very common. The most common type of flat is an expanded flat. This would see minor wave B move above the start of minor wave A at 2,872.87.
Within a flat correction, minor wave B must retrace a minimum 0.9 length of minor wave A at 2,838.85. The most common length for minor wave B within a flat correction would be 1 to 1.38 times the length of minor wave A at 2,872.87 to 3,002.15. An expanded flat would see minor wave B 1.05 times the length of minor wave A or longer, at 2,889.89 or above. A target is today calculated for minor wave B to end, which would see it end within the common range.
Minor wave B may be a regular flat correction, and within it minute wave a may have been a single zigzag and minute wave b may have been a double zigzag. This has a very good fit. The subdivisions at the hourly chart level at this stage would be the same for the last wave down as the main wave count.
This wave count would require a very substantial breach of the 200 day moving average for the end of intermediate wave (4). This is possible but may be less likely than a smaller breach.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A classic symmetrical triangle pattern may be forming. These are different to Elliott wave triangles. Symmetrical triangles may be either continuation or reversal patterns, while Elliott wave triangles are always continuation patterns and have stricter rules.
The vertical green lines are 73% to 75% of the length of the triangle from cradle to base, where a breakout most commonly occurs.
From Dhalquist and Kirkpatrick on trading triangles:
“The ideal situation for trading triangles is a definite breakout, a high trading range within the triangle, an upward-sloping volume trend during the formation of the triangle, and especially a gap on the breakout.”
For this example, the breakout has not yet happened. There is a high trading range within the triangle, but volume is declining.
The triangle may yet have another 8 – 9 weeks if it breaks out at the green lines.
Before that happens though On Balance Volume may give a signal. It must give a signal in the next one to very few weeks as the trend lines are converging.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The gap on today’s open has its lower edge at 2,686.49. The gap may be assumed to be a measuring gap while it remains open and may be used now to pull stops up on any long positions; stops may now be set just below 2,686.49. If this gap is closed, it would be relabelled an exhaustion gap.
The measuring gap yields a target 2,792.
The trend line broken by On Balance Volume today has reasonable technical significance; the line is close to horizontal, was not short held, and was tested four times.
With Stochastics now overbought, the target at 2,792 may be too optimistic. However, if this upwards movement is the start of a longer bull run, then Stochastics may remain overbought for reasonable periods of time.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.
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.
Inverted VIX today has made another new high above the prior high of the 21st of March, but price has still not. This divergence is interpreted as bullish, as VIX is used as a leading indicator here.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
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 longer term 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.
All of small, mid and large caps last week moved higher. There is no divergence to indicate underlying weakness. The small caps this week are rising faster than mid and large.
Breadth should be read as a leading indicator.
The AD line today has made a new high above both the 21st of March and the 13th of March, but price has not yet. This is a strong new high, and it is interpreted as a strong bullish signal. If price and the AD line both move higher tomorrow, then the AD line may make a new all time high, which would be a very bullish signal and may indicate that intermediate wave (4) could have been over at the last low.
DOW THEORY
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: 23,360.29.
DJT: 9,806.79.
S&P500: 2,532.69.
Nasdaq: 6,630.67.
At this stage, only DJIA has made a new major swing low. DJT also needs to make a new major swing low for Dow Theory to indicate a switch from a bull market to a bear market. For an extended Dow Theory, which includes the S&P500 and Nasdaq, these two markets also need to make new major swing lows.
Charts showing each prior major swing low used for Dow Theory may be seen at the end of this analysis here.
Published @ 11:00 p.m. EST.
If the AD line makes a new all time high today that would be a VERY bullish signal. It would be one I would put a lot of weight on, and would have to consider that price should follow through.
And here folks is another problem with fourth waves. They exhibit such huge variety in structure and price behaviour, it is sometimes impossible to tell they are over and won’t continue sideways until price has moved so far away from them that the EW analysis of them is pretty much useless.
So that’s one reason why I studied for my CMT. I need to use classic technical analysis to guide my EW analysis. There will be a point where I should discard the continuation of intermediate (4), or relegate to a highly unlikely alternate. Even if the EW count for intermediate (4) to continue would still remain valid.
A warning: I’m looking now carefully at On Balance Volume, the AD line and to a lesser extent inverted VIX. Along with other indicators I use, but these ones I give much weight to. If they give strong bullish signals then this idea (also published below in response to Rodney’s comment) should be a main wave count.
Thanks for the update and explanation.
Hi Lara
Did the AD line make and all time high today?
Thank You
Yes, it did.
Ok Thank You
Lara
I’m a bit nervous about putting this invalidation point so close. What have I got wrong here? Minuette (iv) looks rather brief, but then the S&P just doesn’t always have nice proportions. The Fibonacci ratios are great. MInuette (v) can’t be longer than minuette (iii) and so within minuette (v) subminuette waves i and ii should now be over.
If I’ve gotten anything wrong here it may be in assuming that minuette (iii) is over. Which would put the invalidation point back down at the high of minuette (i) at 2,665.45.
For now I’ll put it at the start of subminuette iii within minuette (v).
To my eye, the green minuette (iv) looks almost non-existent, and out of proportion in both time and price to the corresponding green minuette (ii). So yes, I suspect minuette (iii) is not over, and minuette (iv) is coming due. After weeks of whipping fast and furious, the market has gone to very low price volatility with a steady but very slow (relatively) push up. I suspect some kind of intake of breath (a small sell off) is due. But markets sometimes climb a wall of worry…
It looks that way to my eye too Kevin.
Before next analysis I’ll be playing with other ways of labelling this. After second coffee.
If anyone thinks Iran vs. Israel fighting it out in Syria (with potential to expand) would be a Big Deal for the markets, I recommend reviewing Friedman’s editorial/report in today’s NYTimes.
So much overlapping sideways action today. I look forward to seeing what Lara makes of it.
Seriously. I can’t believe I try to trade this ….
Thank you Peter!! Getting a good laugh here; I feel your pain. You know all the choices: add more trading vehicles to your watch list, drop down in timeframes, or…spend the time instead on identify where preferred markets would be at an exceptional entry point, and why. I love this exercise, because it makes me focus on letting the market hand me money, instead of me chasing it (which I do too often as a momentum player).
Selling SPY 267 strike calls.
Rolling profits into additional bull put spreads.
DJT today joining other indices in filling overhead gaps.
Chris shared some trading strategies in his post that people pay a LOT of money for to hedge their portfolios. There are not a lot of professional traders that put that stuff out there for the taking. Just saying…
Chris my man, I am really going to miss you on the board…
I don’t think he’s leaving. Just maybe quietening down about some things?
I sure hope he doesn’t…I am still trying to recover from Olga’s long vacation… 🙂
Thank you Verne, your’re alright in my book as well. Certainly not leaving, but will not offer my opinion or trading advice again. Kevin you’re welcome to get my contact info from Lara to share ideas, cause you’re the man too! Lara, obviously it goes without saying, you’re our JEDI!
*blushing*
cheers Chris, that’s a lot to live up to!
Anyone have an opinion on the rise in VIX today with the major indeces also up (in varying degrees…)?
My interpretation is that the VIX is “adjusting” for the sell off coming. SPX only has what, 35-ish points to hit the descending trend line? And it will hit upper bollinger band around that same area. And a sell off is coming due timing cycle wise. Etc. Hence the “slow reversion back down” of VIX after it’s pop on the small early morning selling action. That’s how I personally interpret it. That said, it’s a somewhat small divergence and could be random noise. But watch carefully for more divergence as price approaches the 2738-2748 zone.
SQ is firing on the bull side in every timeframe. Got some today…will reload on a pullback on the hourly (might be a day or two).
Well, good morning to you all. Seems I missed some fireworks yesterday both in the market an on this forum. I always say, “Iron sharpens iron.” But the sharpening process always gives off a few sparks. However, as always, I appreciate the commentary posted by the members of this board, all of you.
Lara, you wrote, “If price and the AD line both move higher tomorrow, then the AD line may make a new all time high, which would be a very bullish signal and may indicate that intermediate wave (4) could have been over at the last low.”
This is the first I recall of you mentioning such a possibility. If so, would the count be a truncated Minor C (at 2553.80) of Intermediate 4?
Have a great day all.
If intermediate (4) is indeed over then this is the best count I can find ATM.
If the AD line makes a new ATH today then this may possibly even be considered as a new main wave count. It should be if the signals are that strongly bullish.
It would be a rather large paradigm shift though for us all. I’m always nervous about changing the main wave count in such a strong way.
Movement of the major indices in unison above strong resistance at the 50 day SMA is short term bullish. I opened a sizeable bull SPY 268/270 put credit spread expiring in May.
Having said that, it is also critical to keep in mind that relentless CB intervention in equities markets could be distorting technical signals. Please don’t waste my time with uninformed rubbish about conspiracy theories if you hold a different opinion. CBOE is now facing a class action lawsuit over price anomalies in VIX that so many folk smugly insisted did not exist. I suspect I will be getting some paperwork in this regard in the near future.
The point I am making with regard to CB intervention and technical signals is that we have to be prepared to see false triggers, both bullish and bearish. I tend to place much more confidence in price movement around longer term MAs like the 50 and 200 day. IF the indices hold the 50 day the next few sessions, we are going higher. I bought SPY 267 calls after we filled the overhead gap as that was a very clear short term bullish development as I indicated last week.
It also looks to me like there is an insane attempt to revive/maintain tthe risk parity trade. It is hard to imagine. Never forget if you are trading the markets, you are dealing with an international criminal cartel, so tread carefully…! 🙂
P.S. IBM is toast…freebie!
Well said Verne, and BO if you’d like access to my research you’re welcome to pay for it. Just because I or anyone else is long term bearish, that does not mean we make one way trades. For example, one FEB 11th I announced I was covering shorts and opening a bull credit put spread. Here’s another example of a trading plan. Like Kevin, I am structurally bearish bonds and have been building a long position in TBT since August 2016. Throughout holding the position, I’ve sold ratio call spreads when it is short term overbought to bring in income and help pay for the contango. Recently, the second week of February I noticed a huge imbalance between speculative shorts and commercial longs in the 10yr, I then proceeded to go long 1 futures contract, sell put spread on TLT, and sell calls on TBT. This allowed me to profit nearly 10% on the futures contract, collect premium on TLT, and the calls on TBT. I then reinvested profits simultaneously, buying the dip in TBT. The point is I did not adjust my long term allocation, but proceeded to trade around it to both hedge and profit. Moreover, Elliott Wave Theory, is not a trading plan or outline, it is just a theory. Waves are only quantified after the fact and it should be used as a cycle guideline, not one that provides specific trading signals. Again Verne you are right, the risk parity trade and short vol trade are nearly back to Jan levels and have been so revived in the past two weeks. The structural risks to the market are so systemic I cannot begin to fathom the destruction of capital that will ultimately occur, whether after a large 4th wave down to 2193-2260 or shortly following a new high 3 weeks from now. Good luck, I will not be posting anymore opinions or comments with respect to this topic anymore. Lara, nice adjustment of the Dow Theory confirmation signals, and thank you for the great objective analysis as always. VIX should show its teeth today.
PS: DONT TRADE WITHOUT STOPS!!!
You are very kind to offer to help Bo Chris.
It is quite ironic we have both done so despite what I consider inaccurate characterization of our views.
Verne, I really appreciate all your rich contributions to Lara’s comment forum (among several others here as well).
But if I may respectfully throw in a gentle correction… we all come and go from here of our own accord. No one is “wasting” your time.
I accept that correction…
It is also the last time I will talk about it on the forum, and focus instead on occasional hopefully helpful comment on the immediate price action. Thanks!
I learn new things some times when you have your rants about banksters and talk of the manipulation going on in the market.
And so if you want to continue to share those ideas that is fine. It would be so much more easily digested by all here if it came with a simple statement of your thoughts, without any implied denigration of others here or elsewhere.
We’re all adults here. We can agree to disagree. And honing the civility of our discourse here does IMO make us all nicer people.
Believe it or not, I have already been contacted regarding whether I would have any interest as a lead plaintiff in the CBOE suit brought by Robbins Geller Rudman & Dowd LLP. The courts are taking this very seriously in granting class action status and this could end up being very costly for CBOE. Even if they were not active participants, they had to be aware of the trader cohort that was engaging in the activity and permitted it to go on for so long. The suit is going back quite a few years so it is not entirely related to the short vol blow-up. I will just waive lead plaintiff rights and remain with the class in all likelihood.
This is going to very interesting. Of course the lawyers get all the settlement money anyway…lol!