The last main Elliott wave count expected upwards movement to continue.

An important trend line has been breached today, and the AD line is very close to providing a major signal.

Summary: The target is now at 2,922. Have some confidence that an upwards trend is most likely underway now that the Elliott wave triangle trend line has been breached.

Corrections are an opportunity to join the trend.

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: 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.

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.

DAILY CHART

Click chart to enlarge.

It is 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.

Price today has clearly broken out above the upper triangle B-D trend line, with a full daily candlestick above and not touching the trend line. This indicates that it should now be over if the triangle is correctly labelled.

A resistance line in lilac is added to this chart. It is the same line as the upper edge of the symmetrical triangle on the daily technical analysis chart. Look out for possible resistance at that line.

Sometimes the point at which the triangle trend lines cross over sees a trend change. A trend change at that point may be a minor one or a major one. That point is about the 3rd of June.

HOURLY CHART

Click chart to enlarge.

While minuette waves (i) and (ii) within minute wave iii are labelled as complete, it is also possible that minuette wave (i) may be incomplete and may be extending. For this reason the invalidation point on the hourly chart will be left in the same place today. Within minute wave iii, no second wave correction may move beyond the start of its first wave below 2,655.20.

The target for minute wave iii expects equality in length with minute wave i, because minute wave ii for this wave count is very shallow.

Now that the upper triangle B-D trend line has been breached, this area may now provide support for corrections.

A base channel is drawn about minute waves i and ii. Along the way up, lower degree corrections should find support about the lower edge of this base channel. The power of minute wave iii may be able to break above the upper edge of the base channel.

ALTERNATE HOURLY CHART

Click chart to enlarge.

It remains possible but highly unlikely that minute wave ii is incomplete as an expanded flat correction.

Minute wave ii may not be a combination if the first wave down is correctly labelled as a double zigzag. The maximum number of corrective structures in a multiple is three, and so to label multiples within multiples increases the maximum beyond three violating the Elliott wave rule. The double zigzag may not be relabelled as minuette wave (w).

If the base channel on the main hourly chart is breached by downwards movement, this would be an explanation.

The target is calculated at two degrees. Minute wave ii may not move beyond the start of minute wave i below 2,594.62.

ALTERNATE WAVE COUNTS

DAILY CHART – COMBINATION

Click chart to enlarge.

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 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

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 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.

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 5 – 6 weeks if it breaks out at the green lines.

Now two bullish long lower wicks are complete, and the second wick is even longer so more bullish. On Balance Volume is at support, which may halt the fall in price. The resistance line on On Balance Volume is slightly adjusted to have stronger technical significance.

DAILY CHART

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 15 to 17 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. Price is now very close to the upper triangle trend line, which may provide some resistance.

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.

Volume today is slightly weaker than yesterday’s downwards day, but stronger than the prior two upwards days. This is bearish, but only slightly so. It is not bearish enough to offer any reasonable support to the alternate hourly wave count.

On Balance Volume is now higher than it was back on the 18th of April, but price is not yet. This is bullish, and On Balance Volume remains overall fairly 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.

Inverted VIX today is much higher than the prior swing high of the 17th / 18th of April, but price is not yet. Reading VIX as a leading indicator, 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, both mid and small caps have now made new small swing highs above the prior highs of the 30th of April (mid caps) and the 26th of April (small caps). Only large caps have not yet made new small swing high above the 30th of April. Small and mid caps may be leading the market. This divergence is interpreted as bullish.

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.

Bullish divergence is being followed by upwards movement. Both price and the AD line moved higher today. The rise in price has support from rising market breadth. There is no new divergence between price and the AD line today.

The AD line is very close to a new all time high. If it makes a new all time high, then bearish Elliott wave counts should be discarded.

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 @ 09:43 p.m. EST.