On Balance Volume gives a signal today that suggests a primary degree correction may have arrived. Fibonacci ratios are used for targets.
Summary: 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.
Along the way up to the final target, two large corrections for primary waves 2 and 4 are expected.
Today a bearish signal from On Balance Volume and increased selling pressure heighten the risk that primary wave 2 may have begun four sessions ago at the last high. The first target would be at 2,635.13. The second target is at 2,524.94. A breach of the black channel on the daily and hourly charts would provide strong confidence in this view.
A new high above 2,813.49 would indicate primary wave 1 is incomplete. The target is at 2,856.
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. March and October are considered as likely months for a bull market to end as in the past they have been popular. That does not mean though that this bull market may not end during any other month.
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. 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. Today the risk of a trend change is heightened due to a bearish signal from On Balance Volume and a spike in volume for this session. Primary wave 1 is tentatively labelled as complete today, but a trend channel breach is still required for confidence.
Primary wave 2 may not move beyond the start of primary wave 1 below 2,346.58.
MAIN HOURLY CHART
Click chart to enlarge.
Today the hourly charts are tentatively swapped over.
It is possible that primary wave 1 may be over and primary wave 2 may have just begun at the last high.
Primary wave 2 would most likely subdivide as a zigzag. It must begin with a five down at the hourly chart level, and within this minor wave 2 may not move beyond the start of minor wave 1 above 2,813.49.
The most likely targets for primary wave 2 would be the 0.382 Fibonacci ratio at 2,635.13 or the 0.618 Fibonacci ratio at 2,624.94. Primary wave 2 may last a few weeks.
A clear breach of the black Elliott channel is required for any confidence in this wave count.
ALTERNATE HOURLY CHART
Click chart to enlarge.
This alternate hourly chart moves the degree of labelling within intermediate wave (5) down one degree.
This alternate hourly wave count expects intermediate wave (5) to be extended.
Within intermediate wave (5), minor wave 1 may have been over at the last high. The subdivisions for both hourly charts are today seen in the same way, with the sole exception the degree of labelling. This main hourly chart moves the degree of labelling down one degree.
Minor wave 2 may not move beyond the start of minor wave 1 below 2,681.83. However, if the black channel is breached by downwards movement (not sideways), that would be taken as an indication that this main wave count would be wrong and the alternate may be correct. This wave count would be discarded prior to full invalidation.
Minor wave 3 should now exhibit some increase in upwards momentum. If should have the power to break above resistance at 2,815.
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.
The last gap is now closed, so it is renamed an exhaustion gap. This is bearish and may be the first warning of a deeper pullback. But equally as likely, at this stage, it may only indicate another relatively brief pullback or sideways consolidation.
Volume now shows some strength in pushing price lower today. On Balance Volume gives a bearish signal that is reasonable because the trend line breached has been reasonably long held. This signal is given weight.
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 sideways and the AD line moved slightly lower. There is no new divergence.
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 sideways and inverted VIX moved slightly lower. There is no new divergence.
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 @ 07:21 p.m. EST.
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Follow my two Golden Rules:
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Been on the road all day. I see there was no follow through on the upside gap today. That is not good for the bullish case at all.
Have a great weekendgiys and gals.
Main hourly chart updated:
The invalidation point for this chart is black and white. Any movement by any amount at any time frame above 2,813.49 invalidates it and tells us the trend remains up.
For now, the signal from On Balance Volume suggests this count is right. I still want to see the black channel breached for real confidence in it though.
Alternate hourly chart updated:
No change this morning.
Price remains well within the black channel, this count is entirely valid. Price needs to overcome some strong resistance here though, and the signal from On Balance Volume would be false. That does happen sometimes, but not as often as OBV giving true signals.
Lara,
Is there anything wrong with this analysis: Wave 1 (blue) is still in progress, SPX just finished wave IV (pink, circle) and is about to start V (pink, circle) ?
Technically, no. It meets all EW rules. But minute iv is huge in duration compared to minute ii, and minute ii was not only quicker but moved a shorter distance. There is terrible proportion between them.
It’s technically possible, but I would judge it to have a very low probability.
Thank you.
Also wave B of (IV) is disproportionately large versus A. But it would allow for a quick move up, finish P1 early next week, and start (finally!) start P2.
Looking at a daily chart of SPX, today looks a heck of a lot like 2/11. An indecisive spinning top that clearly breaks a multi-day pullback in the course of the larger up trend. Which was followed by strong upward price movement.
Gotta watch the banksters.
Leveraged unwinds usually a dead give-away they are baiting the bulls.
Smoke N’ Mirrors….!
Question for Lara and Verne. I am new to the site but not new to EW. Verne called a Triangle yesterday at minute wave ii and Lara questioned that as not possible. However, Verne traded the up move nicely this morning. If it wasn’t a thrust out of a triangle, then what was it?
thanks
Gary
It was a B wave, but not a triangle. My main hourly chart has it as a combination.
That’s the tricky thing about triangles. They can look really good… right up until the end it can be invalidated and turn out to be something else. The something else is usually a combination.
Verne traded the C wave of a little zigzag upwards.
Thank you. That is helpful. Love your site. I have struggled with EW for years in the past but always felts there was lots of wisdom in it. Still trying to understand the nuance.
I’m not a 100% on board with this bullish count yet even though it seems the obvious choice.
Main count expects a significant correction underway…
The price action in IWM make me the high today in SPX and NDX were wave 2 peaking we are headed down. IWM close to closing entire gap up!!!
🙂
This price action seems a little problematic for the main (bearish) hourly. It can be recast I suspect, but as it, it doesn’t seem to work. What should have been minor 3 action down instead has pushed up into the body of the minor 1 down.
It is more consistent with the bullish alternate, even with the big gap fill. So far.
That said, all I really see with confidence is a bunch of sideways consolidation or topping action. Going nowhere fast. Until it does.
As I see it I’m going to be fully bearish across all three indices if IWM breaches yesterdays low
Agreed. Though I’d want to see Wed’s slightly lower low go as well. I will be surprised if that happens today, however. “Everybody” knows there’s big resistance just overhead, so lots of folks are aggressively fading every push up. That’s how I see this action. Ergo, the market is going to washing machine sideways here for awhile.
BTW, all of RUT, NDX and SPX are in multi-hour squeezes now. That’s not super common.
2787.5-2788 had overlapped 78.6% and 61.8% retrace fibos. A nice tag and turn. Right as RUT fully gap filled.
Minor 1 needs to be relabeled to finish at 2775, with today’s high marking end of Minor 2. If this is the bear count that is…
They are NOT going to make it easy…! 😀
I feel the same way TS.
It’s important to note that there isn’t anything significantly bearish about the actual price actual. Nothing. The only “bearish” attributes here is the thick resistance right overhead, and and theoretical (probabilistic) bear count. The price action just doesn’t yet in any way validate a bearish outlook. That could change any hour.
Thank You! Mr. Market! 😉
There’s the familar triangle thrust!
Gotta love ’em!! 🙂
Hey Peter S, did you trade it?
Nicely done !
“Bread and Butter” trade my man. I love ’em. 🙂
yes… and thank you
just so hard to chart a legitimate EW to go with the action
But you faded it right brother ?
: )
sold the open, yes sir
Well, if the expected gap up at this morning’s open follows through to o new swing high, it looks like 2856 is on the horizon. 500 SPX points up off the 2350 low in Dec is a powerful 1st wave. Good signal from Zweig Breadth Thrust Indicator.
The quick reversal and gap filling action indicates this is just more “backing and filling” action underneath the extremely strong 2808-2820 resistance zone. Or, possibly, churning at the top action. I presume the former (“assume trend remains the same”), unless/until price breaks below 2775. If that happens…I think it’s finally on to the downside. Right now though, sloppy sideways action until further notice.
Two in a row. #1!