An inside day closes red and remains above the short term invalidation point on the hourly chart.
Overall, the analysis remains the same. A signal today from On Balance Volume prompts two alternate hourly wave counts for the short term picture.
Summary: While price remains above the lower edge of the base channel on the main hourly chart, assume a third wave may be unfolding. The short term target is at 2,824 or 2,915. The mid to longer term target is at 2,922. The final target for this bull market to end remains at 3,616.
Small bearish divergence today from On Balance Volume suggests the pullback may not be over and continue lower to again test the lilac trend line, or to end about 2,651. If price breaks below the base channel on the main hourly chart, then this would increase in probability.
Pullbacks are an opportunity to join the trend. An upwards trend is expected to develop, which has very strong support from new all time highs from the AD line and On Balance Volume.
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.
ELLIOTT WAVE COUNT
Cycle wave V must complete as a five structure, which should look clear at the weekly chart level and also now at the monthly 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.
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).
If intermediate wave (4) were to continue further as either a flat or combination, both possibilities would require another deep pullback to end at or below 2,532.69. With both On Balance Volume and the AD line making new all time highs, that possibility looks extremely unlikely.
If intermediate wave (4) were to continue further, it would now be grossly disproportionate to intermediate wave (2). Both classic technical analysis and Elliott wave analysis now suggest these alternate ideas should be discarded based upon a very low probability.
Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,594.62.
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 below 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 has clearly broken out above the upper triangle B-D trend line. This indicates that it should now be over if the triangle is correctly labelled.
A trend 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. Price has found support about this line at the last two small swing lows. The suppport at this line has reasonable technical significance now that it has been tested twice, and this line should be assumed to continue to provide support until proven otherwise.
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 now about the 10th of June.
Minor wave 2 may be a complete zigzag. There is no adequate Fibonacci ratio between minute waves a and c.
The daily chart is on a semi-log scale. This hourly chart is on an arithmetic scale, and this is why the lilac trend line sits slightly differently on each chart. On this hourly chart, price perfectly found support at the lilac trend line. Minor wave 2 ends with a strong bullish engulfing candlestick pattern.
A base channel is added to minor waves 1 and 2: draw the first trend line from the start of minor wave 1 on the low of the 3rd of May, to the end of minor wave 2, then place a parallel copy on the end of minor wave 1. Corrections should find support about the lower edge of this base channel as minor wave 3 unfolds along the way up.
Minor wave 2 was relatively shallow, less than 0.5 of minor wave 1. Look out for corrections now within minor wave 3 to possibly be more shallow than otherwise expected.
Minor wave 3 must subdivide as an impulse. If it is extended, then within it minute waves ii and iv may show up on the daily chart lasting from one to a few sessions. So far for this wave count minute wave ii now subdivides as a double zigzag and shows up on the daily chart as one red candlestick. It may be over here, just short of the 0.618 Fibonacci ratio of minute wave i.
If minute wave ii continues lower, it should find strong support at the lower edge of the blue base channel. A breach of that trend line by downwards movement would reduce the probability of this main wave count; alternates would then be more likely. Minute wave ii may not move beyond the start of minute wave i below 2,676.81.
Two targets are given for minor wave 3 to end, and both fit with the higher target for primary wave 3 to end on the daily chart. If price keeps on rising after the first target has been reached, or the structure is incomplete, then the second target will be used.
With the classic technical analysis now very bullish, a more bearish alternate hourly wave count will not be published today.
FIRST ALTERNATE HOURLY CHART
Minor wave 2 may be continuing lower as a double zigzag. The double may be joined by a complete three in the opposite direction, a zigzag labelled minute wave x. A second zigzag may now continue lower to end close to the 0.618 Fibonacci ratio at 2,651.
If the target at the 0.618 Fibonacci ratio is wrong, it may still be too low. The lilac trend line has so far offered strong support, and it may continue to do so. If price moves lower to again touch this trend line, and if there is a zigzag for minute wave y that may be complete, then it may end there.
Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.
SECOND ALTERNATE HOURLY CHART
Minor wave 2 may be continuing further as a flat correction, and within it minute wave a may be a complete three, a double zigzag. Minute wave b may be moving a little higher as a single zigzag.
When minute wave b may be complete, then minute wave c may move lower to end at least slightly below the end of minute wave a at 2,676.81 to avoid a truncation. Minute wave c may end about either the lilac trend line, or the 0.618 Fibonacci ratio.
This wave count would see minor wave 2 continue further for several days.
If price makes a new high above 2,742.24 and exhibits weakness, or there are bearish signals from On Balance Volume or the AD line at that point, then this alternate may be correct. B waves should have something “wrong” about them; they should exhibit weakness.
Click chart to enlarge. Chart courtesy of StockCharts.com.
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 may have now happened. There was a high trading range within the triangle, but volume declined. A downwards week may be a typical pullback following the breakout. If the pullback is not over, then expect support still about the upper edge of the symmetrical triangle top trend line.
Click chart to enlarge. Chart courtesy of StockCharts.com.
The symmetrical triangle may now be complete, and price has completed an upwards breakout. There may be some small cause for concern that the upwards breakout does not have support from volume. However, in current market conditions only some small concern is had here. Rising price on light and declining volume has been a feature of this market for years, yet price continues to rise.
After an upwards breakout, pullbacks occur 59% of the time. While the pullback may still be over at the last test of the upper triangle trend line, bearish volume and bearish divergence between price and On Balance Volume today suggest another test of that line may come in another one to very few days.
Symmetrical triangles suffer from many false breakouts. If price returns back into the triangle, then the breakout will be considered false and the triangle trend line will be redrawn.
The base distance is 340.18. Added to the breakout point of 2,704.54 this gives a target at 3,044.72. This is above the Elliott wave target at 2,922, so the Elliott wave target may be inadequate.
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.
Both price and inverted VIX moved lower today. There is no new divergence.
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. New all time highs from the AD line means that any bear market may now be an absolute minimum of 4 months away. It may of course be a lot longer than that. My next expectation for the end of this bull market may now be October 2019.
Small caps have made another new all time high, but mid and large caps have yet to do so. This divergence may be interpreted as bullish. Small caps may now be leading the market.
Breadth should be read as a leading indicator.
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.
The new strong all time high is extremely bullish and supports the Elliott wave count, which expects price to follow through.
Both price and the AD line moved lower today. There is no new divergence in today’s movement.
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 @ 07:55 p.m. EST.