Upwards movement continued for the start of the new week, reaching just 0.51 points short of the first target.
Summary: Upwards movement is slowing now it has reached a strong zone of resistance about 2,800 to 2,815. It is possible that one slight new high to the first target at 2,814 could end primary wave 1 tomorrow, and primary wave 2 may then begin. It is also possible that primary wave 2 may have just begun today.
If price reaches 2,814 and the structure is incomplete or it just keeps rising, then the next target is at 2,856.
The bottom line for primary wave 1 now is we should assume it will continue higher towards targets until the black channel on the daily chart is breached by downwards movement.
The bigger picture still expects that a low may now be in place.
The final target is at 3,045 with a limit at 3,477.39.
New updates to this analysis are in bold.
The biggest picture, Grand Super Cycle analysis, is here.
Last published monthly charts are here. Video is here.
ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This weekly chart shows all of cycle waves III, IV and V so far.
Cycle wave II fits as a time consuming double combination: flat – X – zigzag. Combinations tend to be more time consuming corrective structures than zigzags. Cycle wave IV has completed as a multiple zigzag that should be expected to be more brief than cycle wave II.
Cycle wave IV may have ended at the lower edge of the Elliott channel.
Within cycle wave V, no second wave correction may move beyond the start of its first wave below 2,346.58.
Although both cycle waves II and IV are labelled W-X-Y, they are different corrective structures. There are two broad groups of Elliott wave corrective structures: the zigzag family, which are sharp corrections, and all the rest, which are sideways corrections. Multiple zigzags belong to the zigzag family and combinations belong to the sideways family. There is perfect alternation between the possible double zigzag of cycle wave IV and the combination of cycle wave II.
Although there is gross disproportion between the duration of cycle waves II and IV, the size of cycle wave IV in terms of price makes these two corrections look like they should be labelled at the same degree. Proportion is a function of either or both of price and time.
Draw the Elliott channel about Super Cycle wave (V) with the first trend line from the end of cycle wave I (at 2,079.46 on the week beginning 30th November 2014) to the high of cycle wave III, then place a parallel copy on the low of cycle wave II. Cycle wave V may find resistance about the upper edge.
It is possible that cycle wave V may end in October 2019. If it does not end there, or if the AD line makes new all time highs during or after June 2019, then the expectation for cycle wave V to end would be pushed out to March 2020 as the next possibility. Thereafter, the next possibility may be October 2020.
DAILY CHART
Click chart to enlarge.
The daily chart will focus on the structure of cycle wave V.
Within Super Cycle wave (V), cycle wave III may not be the shortest actionary wave. Because cycle wave III is shorter than cycle wave I, this limits cycle wave V to no longer than equality in length with cycle wave III at 3,477.39. A target is calculated for cycle wave V to end prior to this point.
Cycle wave V must subdivide as a five wave motive structure, either an impulse or an ending diagonal. An impulse is much more common and that will be how it is labelled. A diagonal would be considered if overlapping suggests it.
Primary wave 1 is labelled as incomplete.
An Elliott channel is drawn about the impulse of primary wave 1. This channel will now be used to indicate when primary wave 1 is complete and primary wave 2 has begun. When a full daily candlestick prints below the lower edge of the channel and not touching the lower edge, that may be taken as confirmation of a trend change. Assume the trend remains the same, upwards, while price remains within the channel.
Primary wave 2 may not move beyond the start of primary wave 1 below 2,346.58.
MAIN HOURLY CHART
Click chart to enlarge.
This main hourly wave count expects intermediate wave (5) to not be extended and to end within a strong zone of resistance about 2,800 to 2,815.
Within intermediate wave (5), minor waves 1 through to 4 may be complete. Minor wave 3 for this wave count is shorter in length than minor wave 1. Because a core Elliott wave rule states third waves may not be the shortest actionary waves, this limits minor wave 5 to no longer the equality in length with minor wave 3 at 2,823.20. A target for minor wave 5 to end is calculated which is below this limit.
Minor wave 5 may be unfolding as a short impulse, and within it minute waves i through to iv may today be complete. If minute wave iv moves any lower, it may not move into minute wave i price territory below 2,794.20.
If price makes a new low tomorrow below 2,794.20 (prior to making a new high), then minor wave 5 may have been over at today’s high. This would mean that minor wave 5 would look like a three wave structure on this hourly chart (it is possible to count it as a five wave structure on the five minute chart). A break below 2,794.20 tomorrow would indicate primary wave 1 could possibly be over.
A breach of the black Elliott channel, which is copied over here from the daily chart, would still be required for confidence in a trend change at primary degree.
ALTERNATE HOURLY CHART
Click chart to enlarge.
Within intermediate wave (5), minor waves 1 and 2 may be complete. This alternate wave count expects intermediate wave (5) may be extending. This would be required for the target at 2,856 to be met.
Within minor wave 3, minute wave iv may not move into minute wave i price territory below 2,794.20. However, it is also possible to label minute wave i complete as a five wave impulse at the last high. Therefore, the invalidation point for this alternate must remain the same: if minute wave ii is now unfolding, then it may not move beyond the start of minute wave i below 2,764.55.
This wave count would expect pullbacks within intermediate wave (5) to now find support about the lower edge of the base channel drawn here. If this trend line is breached by downwards movement, that would be an indication this wave count may be wrong.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of et=”_blank”>StockCharts.com.
Because this week consisted of only four trading days, the decline in volume may not be necessarily bearish. It is necessary this week to look inside the week at daily volume bars to judge the volume profile.
Overall, this chart is bullish and supports the Elliott wave count.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Over a fairly long period of time this ageing bull market has been characterised by upwards movement on light and declining volume and low ATR. For the short to mid term, little concern may be had if price now rises again on declining volume. Current market conditions have allowed for this during a sustained rise in price.
It is also normal for this market to have lower ATR during bullish phases, and strongly increasing ATR during bearish phases. Currently, declining ATR is normal and not of a concern.
Considering the larger picture from the Elliott wave count, some weakness approaching the end of Grand Super Cycle wave I is to be expected.
From Kirkpatrick and Dhalquist, “Technical Analysis” page 152:
“A 90% downside day occurs when on a particular day, the percentage of downside volume exceeds the total of upside and downside volume by 90% and the percentage of downside points exceeds the total of gained points and lost points by 90%. A 90% upside day occurs when both the upside volume and points gained are 90% of their respective totals”…
and “A major reversal is singled when an NPDD is followed by a 90% upside day or two 80% upside days back-to-back”.
The current situation saw two 80% downside days on December 20th and 21st, then a near 90% downside day with 88.97% downside on December 24th. This very heavy selling pressure on three sessions together may be sufficient to exhibit the pressure observed in a 90% downside day.
This has now been followed by two 90% upside days: on December 26th and again on 4th January.
The current situation looks very much like a major low has been found.
This chart is overall very bullish. Only the moving averages are not yet full bore bullish.
Price is now within a very strong zone of resistance, which sits about 2,800 to 2,815. Today the balance of volume was upwards and volume supports this upwards movement. However, price was not able to close above resistance and the session ended with a red daily candlestick.
The gap up today remains open as long as price remains above 2,794.20. If this last gap is closed, it would be an exhaustion gap and either a trend change or some consolidation may then be expected.
Near term caution is warranted.
BREADTH – AD LINE
WEEKLY 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.
Every single bear market from the Great Depression and onwards has been preceded by a minimum of 4-6 months divergence between price and the AD line. With the AD line making a new all time high again last week, the end of this bull market and the start of a new bear market must be a minimum of 4 months away, which is mid to end June 2019 at this time.
DAILY 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.
Breadth should be read as a leading indicator.
There is now a cluster of bullish signals from the AD line. This supports the Elliott wave count.
Today price moved higher, but the AD line is essentially flat. There is divergence, but it is too weak to be noticeable here.
VOLATILITY – INVERTED VIX CHART
WEEKLY 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.
Inverted VIX has made a new high above the prior swing high of the week beginning 5th of November 2018, but price has not. This divergence is bullish for the mid term.
DAILY 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.
There is now a cluster of bullish signals from inverted VIX that support the Elliott wave count.
Today price moved a little higher, but inverted VIX moved strongly lower. This divergence is bearish and strong for the short term.
DOW THEORY
Dow Theory confirms a bear market. This does not necessarily mean a bear market at Grand Super Cycle degree though; Dow Theory makes no comment on Elliott wave counts. On the 25th of August 2015 Dow Theory also confirmed a bear market. The Elliott wave count sees that as part of cycle wave II. After Dow Theory confirmation of a bear market in August 2015, price went on to make new all time highs and the bull market continued.
DJIA: 23,344.52 – a close on the 19th of December at 23,284.97 confirms a bear market.
DJT: 9,806.79 – price has closed below this point on the 13th of December.
S&P500: 2,532.69 – a close on the 19th of December at 2,506.96 provides support to a bear market conclusion.
Nasdaq: 6,630.67 – a close on the 19th of December at 6,618.86 provides support to a bear market conclusion.
With all the indices moving now higher, Dow Theory would confirm a bull market if the following highs are made:
DJIA: 26,951.81
DJT: 11,623.58
S&P500: 2,940.91
Nasdaq: 8,133.30.
Published @ 05:55 p.m. EST.
—
Careful risk management protects your trading account(s).
Follow my two Golden Rules:
1. Always trade with stops.
2. Risk only 1-5% of equity on any one trade.
I see a impulse down off the recent high, then an expanded flat W up, an X down, and now some kind of Y up. Maybe. Watch for a possible turn at 2804, the 61.8% going back up.
possibly starting a iii down now, after an initial i down and ii up (the WXY described).
That is the same count I have.I think that late push confirms it.
I’m seeing the same thing. Nice strong move down into the finish, closing below 2795. RUT closing very close to session lows, leading the way… and SPX printing a gravestone doji, that looks even better in it’s ETF, the SPY.
If the market weakens here as this week progresses, AVGO may be one of my go to’s for a short. I looks ready for some profit taking at the very least. This is daily, and I’ll be on a break below that blue 21 ema it’s sitting on now. That should also drive the daily trend to “down”. It’s a counter trend trade though as the weekly trend is strong up. But rolling over. So I want to see broader market support for it.
Main hourly chart updated:
The impulse is invalid. A diagonal is considered now that there is overlapping to suggest it. Within the diagonal minute iv must overlap minute i price territory, but may not move beyond the end of minute ii below 2,781.58.
Minute v must be longer than minute iii to meet the rules regarding wave lengths for expanding diagonals. It must end above 2,821.08.
The target is now too low for this structure.
Alternate hourly chart updated:
There may now be two overlapping first and second waves complete within the start of minor wave 5.
The target remains the same and looks okay still for this count.
Interesting that the lower edge of the adjusted base channel is showing where price is finding support this afternoon. If that holds, this count is going to end the day looking pretty good.
For this count I’m leaving the invalidation point as is, to be more conservative.
Now lets see how the session ends. Will volume be present to push price lower? Will there be any strength or weakness in today’s movement? How does the candlestick look at the close?
I was considering this as well but aren’t expanding diagonals fairly rare? While I have an alt count that counts it possible yesterdays high of was the end of PW 1 and we finished a 1 down and are working ABC 2 up today that seems too easy to me as well.
Not too rare. I’ve seen a fair few.
RUT hourly now in a down trend. Tagged the first 61.8%. A break below is a trigger.
RUT the canary in the coal mine today? Love it when RUT runs, which is does a lot. Good things to say about a 2000 wide (->more stable, more trendy) average.
RUT has been the canary! It lead the way down way back when we were at ATH’s. And has lead the way up from December lows…
And I agree with you, it seems to be leading back down again…
My only hesitation is that as IWM makes its first 2nd wave correction upwards when this impulse down finishes, will that carry SPX over the high of yesterday at 2813…
Well, with TLT just floating around the 121.5 area…I just had to put on a fly for 3/15 centered right there. Nailed it in February, gotta try again!
I also like KSU (daily shown) to the downside here, 3/15 put bear spread, 109/111. RSI is showing bearish divergence with the recent new highs on this daily, it looks like an ABC correction up, and is turning pretty close to the 78.6%. Up and through that level to 114 and I stop out.
My AMGN view, daily, looking for a B up of a Y down here. I have a call spread with the upper call at 190, expiry 3/15, I like this trade I think the EV is quite positive. Note it’s day 2 of a squeeze also on rising momentum.
Yesterday was a breakout
What’s the meaning and implication of “break out” here CM?
Hey Kevin,
The way I’m using breakout here is to indicate that resistance has failed. If the line drawn is an upper trend line, it has broken.
One implication is that it’s time to look for another trend channel for price to move in. A possible channel is the one drawn in my lower chart. I’m not seeing yesterday’s breakout high as a climactic capitulation, so it’s possible to make a higher high than yesterday’s high. It’s a bit lame and a bit early to call the lower chart “the new trend channel”. The upper trend line is anchored by exactly one point. It does give price some breathing room, however.
Notice the white space under the trend line. The first 2 are followed by a rally. Will it happen a third time?
13 EMA line
In reviewing my post, I realize that I have used poor verbiage. What I’m trying to say is that the white space under the **moving average** line …
China has opened up the Q.E flood-gates!
CSI 100 up an astonishing 6.7 % in futures!(Trade deal optimism?)
Will the FED follow suit?
ES filled it rare open gap from this morning.
If we see a violent reversal tomorrow we will very likely see quite a blow-off move up tomorrow. Will wonders never cease!?
I will be looking for a nice fat bullish engulfing candle in UVXY tomorrow and the reverse in SVXY in the event we see a final ramp. Batten down the hatches! 🙂
Vix has reclaimed 15 this morning …
Important support level
Can it hold it
Problem is they are defending the round numbers and getting away with it due to an absence of selling pressure. The tentative initial wave down also a caution flag. We could see one more leg up. Ideally any new VIX low morphs into a bullish engulfing candle. I don’t think they have unwound…not just yet…but they will….
Vix held 15 brother 🙂
Did some small spy call hedges for my short position tomorrow 279-280-282 butterfly at close for a few pennies …
Closed my vxxb short 30.50 puts today
Feeling way better about my vxxb long than I did a week ago..
But will consider exiting on a vix close below 15…
And maybe try a different instrument (put sales or call spreads )
Someone once corrected my reference to an ES gap with the phrase “this morning” and assumed I was confused about cash vs futures! I know you guys got my drft. Some people!