Last analysis expected upwards movement. The whipsaw invalidated the hourly wave count, but price remains above the daily invalidation point.
The AD line, VIX and On Balance Volume all give the same signal today.
Summary: The target is now at 2,922.
Traders with a lower risk appetite may set stops just below today’s low. For those comfortable with the possibility of an underwater position for a few days, stops may be just below 2,553.80.
A more cautious approach here may be to wait for an upwards breakout above the triangle B-D trend line before entering another long position.
There is bullish divergence today between price and On Balance Volume, VIX and the AD line. Along with today’s bullish long lower wick, it looks like a low is in place here.
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.
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
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: the first trend line from the ends of intermediate waves (2) to (4), then a parallel copy on the end of intermediate wave (3). Intermediate wave (5) may end either midway within the channel, or about the upper edge.
At least three wave counts remain valid at the daily chart level. It is possible still that a low may not be in place; intermediate wave (4) could still continue further. 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.
Intermediate wave (4) may now be a complete regular contracting triangle lasting fourteen weeks, one longer than a Fibonacci thirteen. There is perfect alternation and excellent proportion between intermediate waves (2) and (4).
At this stage, there are still three possible structures for intermediate wave (4): a triangle, a combination, and a flat correction. All three will be published. The triangle is preferred because that would see price find support about the 200 day moving average. While this average provides support, it is reasonable to expect it to continue (until it is clearly breached).
The triangle may be complete now, but the other two possibilities of a flat and combination may be incomplete.
It is again possible that intermediate wave (4) is a complete regular contracting triangle, the most common type of triangle. Minor wave E may have found support just above the 200 day moving average and ending reasonably short of the A-C trend line. This is the most common look for E waves of triangles.
Intermediate wave (3) exhibits no Fibonacci ratio to intermediate wave (1). It is more likely then that intermediate wave (5) may exhibit a Fibonacci ratio to either of intermediate waves (1) or (3). The most common Fibonacci ratio would be equality in length with intermediate wave (1), but in this instance that would expect a truncation. The next common Fibonacci ratio is used to calculate a target for intermediate wave (5) to end.
It must still be accepted that the risk with this wave count is that a low may not yet be in place; intermediate wave (4) could continue lower. For this triangle wave count, minor wave E may not move beyond the end of minor wave C below 2,553.80.
When price has clearly broken out above the upper triangle B-D trend line, then the invalidation point may be moved up to the end of intermediate wave (4).
The whipsaw today may have been the end of minor wave E as a single zigzag. Within both of minute waves a and c, there is disproportion between the corrections of minuette waves (ii) and (iv), which gives each wave a three wave look where they should look like fives. Unfortunately, this is a tendency of this market. It does not always have threes that look clearly like threes, nor fives that look clearly like fives.
An alternate way to label this movement is given below.
If minor wave E is over at today’s low, then within intermediate wave (5) no second wave correction may move beyond the start of its first wave below 2,594.62.
A new high above 2,660.87 would invalidate the alternate below and provide first confidence in this main hourly wave count.
ALTERNATE HOURLY CHART
Here, all of minute waves a, b and c are labelled differently.
Minute wave a may have been over sooner. The proportions between minuette waves (ii) and (iv) within it now look good.
Minute wave b may have been a sideways double combination. The first structure in the double may have been an expanded flat labelled minuette wave (w). The double is joined by a three in the opposite direction labelled minuette wave (x). The second structure in the double may be a zigzag labelled minuette wave (y), ending very close to the same level as minuette wave (w). The problem here is the length of minuette wave (x). There is no Elliott wave rule stating a maximum nor minimum length for X waves within combinations, but there is a convention for flat corrections that states their B waves are very rarely more than twice the length of their A waves. That convention may logically be applied to X waves within combinations, as they are analogous to B waves within flats. Here, minuette wave (x) is much longer than twice the length of minuette wave (w) and that reduces the probability of this wave count.
All rules are met.
Minute wave c may be an ending expanding diagonal. Minuette wave (iv) must move a little higher for the trend lines to diverge, and it may not move beyond the end of minuette wave (ii) above 2,660.87. Thereafter, minuette wave (v) must be longer than equality in length with minuette wave (iii), which was 66.25 points.
Minor wave E may end with one more low tomorrow or Monday. It would most likely end short of the lower blue A-C triangle trend line.
ALTERNATE WAVE COUNTS
DAILY CHART – COMBINATION
I have charted a triangle a great many times over the years, sometimes even to completion, only to see the structure subsequently invalidated by price. When that has happened, the correction has turned out to be something else, usually a combination. Therefore, it is important to always consider an alternate when a triangle may be unfolding or complete.
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 at this stage the expected direction for that idea does not differ now from the main wave count.
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.
Minute wave b must now reach a minimum 0.90 length of minute wave a. Minute wave b may be unfolding as a double zigzag. Within a double zigzag, the second zigzag exists to deepen the correction when the first zigzag did not move price deep enough. Double zigzags normally have a strong slope like single zigzags. To achieve a strong slope the X wave within a double zigzag is normally brief and shallow, most importantly shallow (it rarely moves beyond the start of the first zigzag). A new low now below 2,586.27 should see the idea of a double zigzag for minute wave b discarded.
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.
Minute wave b may make a new high above the start of minute wave a if minor wave Y is an expanded flat. There is no maximum length for minute wave b, but there is a convention within Elliott wave that states when minute wave b is longer than twice the length of minute wave a the idea of a flat correction continuing should be discarded based upon a very low probability. That price point would be at 3,050. However, if price makes a new all time high and upwards movement exhibits strength, then this idea would be discarded at that point. Minute wave b should exhibit obvious internal weakness, not strength.
At this stage, the very bullish signal last week from the AD line making a new all time high puts substantial doubt on this wave count. It has very little support from classic technical analysis.
DAILY CHART – FLAT
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 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.
However, minute wave c must be a five wave structure for this wave count and now the depth and duration of subminuette wave ii looks wrong. The probability that minute wave c upwards is unfolding as an impulse is now reduced. It is possible that it could be a diagonal, but that too has a relatively low probability as the diagonal would need to be expanding to achieve the minimum price target for minor wave B, and expanding ending diagonals are not very common.
At its end minor wave B should exhibit obvious weakness. If price makes a new all time high and exhibits strength, then this wave count should be discarded.
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. The bullish signal from the AD line making a new all time high puts substantial doubt on this wave count.
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 6 – 7 weeks if it breaks out at the green lines.
A bullish long lower wick and support here or very close by for On Balance Volume suggest the pullback last week may be over, despite volume increasing. Looking inside the week at daily volume gives a clearer picture of where greatest support was.
Click chart to enlarge. Chart courtesy of StockCharts.com.
During this large consolidation, there are two green daily candlesticks with strongest volume:
1. the 6th of February was a downwards day, but it closed green and the balance of volume that day was upwards; this has the strongest volume during the consolidation.
2. the 16th of March was an inside day, which closed green and has the balance of volume upwards; this has the next strongest volume.
This market has been range bound since the last all time high. Volume suggests an upwards breakout is more likely than downwards. With price coiling in an ever decreasing range, it looks like a classic symmetrical triangle is forming. These are similar but not completely the same as Elliott wave triangles. Symmetrical triangles may be either continuation or reversal patterns while Elliott wave triangles are always continuation patterns.
Breakouts from symmetrical triangles most commonly occur from 73% to 75% of the length from base to cradle. In this instance, that would be in another 19 to 21 sessions. A breakout should be a close above or below the triangle trend lines, and an upwards breakout should have support from volume for confidence.
After an upwards breakout, pullbacks occur 59% of the time. After a downwards breakout, throwbacks occur 37% of the time.
After a breakout, the base distance (the vertical distance between the initial upper and lower reversal point prices) may be added to the breakout price point to calculate a target. Here, the base distance is 320.28 points.
For most recent days, it is the upwards day of the 26th of April that has strongest volume. This is bullish. But for the last two days volume supported downwards movement, which is bearish.
This chart is mixed. Bearish are ADX, today’s volume and MACD. Bullish are the short term volume profile, On Balance Volume and support continuing about the 200 day moving average.
There are now two instances of recent bullish divergence between price and On Balance Volume. Price today has made a new swing low below the prior low of the 25th of April, but On Balance Volume has not. This indicates weakness in price and is bullish.
Today’s long lower wick is very bullish.
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.
There is still a cluster of bullish signals on inverted VIX. Overall, this may offer support to the main Elliott wave count.
Price today moved lower, but inverted VIX has moved higher. The fall in price has not come with a normal corresponding increase in market volatility; volatility has declined. This divergence is bullish.
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. A new all time high from the AD line this week means that any bear market may now be an absolute minimum of 4 months away.
For most recent days, only mid and large caps have made new swing lows below the prior low of the 1st of May. Small caps have today not made a new small low. This pullback today does not have broad support from falling market breadth.
Breadth should be read as a leading indicator.
The new all time high from the AD line remains very strongly bullish and supports the main Elliott wave count.This new all time high from the AD line will be given much weight in this analysis. This is the piece of technical evidence on which I am relying most heavily in expecting a low may be in place here or very soon.
There has been a cluster of bullish signals from the AD line in the last few weeks. This also overall offers good support to the main Elliott wave count.
While both price and the AD line moved lower today, price has made a new swing low below the prior low of the 25th of April, but the AD line has not. This divergence is bullish, and it indicates weakness here within price.
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:
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 @ 07:08 p.m. EST.