Price remains range bound. Strength within this last session along with the AD line as an indicator of breadth, and VIX as an indicator of volatility, are used to determine the most likely Elliott wave count.

Summary:Price remains range bound. To indicate the next movement there needs to be a breakout. Downwards movement today was weak and this favours the view that the breakout may be upwards. Both the AD line and inverted VIX give bullish signals today.

A close above 2,813.49 would indicate the upwards trend remains intact. The target would then be at 2,856.

A breach of the black channel on the daily chart would indicate a deeper pullback has arrived for primary wave 2. Targets would be 2,635 and 2,525.

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. Recent downwards days lack strength, and price remains mostly within the black Elliott channel.

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.

Primary wave 2 may not move beyond the start of primary wave 1 below 2,346.58.

MAIN HOURLY CHART

Click chart to enlarge.

Hourly charts are again swapped over today.

This 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 seen in the same way, with the sole exception the degree of labelling. This hourly chart moves the degree of labelling down one degree.

Minor wave 2 may be a complete expanded flat correction, ending with an overshoot of the black Elliott channel but not a proper breach.

Minor wave 3 should now exhibit some increase in upwards momentum. If should have the power to break above resistance at 2,815.

Within minor wave 3, no second wave correction may move beyond the start of its first wave below 2,767.66.

ALTERNATE HOURLY CHART

Click chart to enlarge.

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 may now not be subdividing as a zigzag. Primary wave 2 may be subdividing as a flat or combination.

If primary wave 2 is subdividing as a flat correction, then within it intermediate wave (A) may be a complete three wave structure, itself subdividing as an expanded flat. Intermediate wave (B) may now make a new price extreme above the start of intermediate wave (A) at 2,813.49. Intermediate wave (B) of a flat correction would need to retrace a minimum 0.9 length of intermediate wave (A) at 2,812.04.

If primary wave 2 is subdividing as a double combination, then the first structure in a double may be complete as an expanded flat labelled intermediate wave (W). The double may then be joined by a three in the opposite direction labelled intermediate wave (X). There is no minimum requirement nor maximum limit for intermediate wave (X). The second structure in a double combination would most likely be a zigzag and would be labelled intermediate wave (Y). It should end about the same level as intermediate wave (W) at 2,768.53.

For both of a flat correction or double combination primary wave 2 would be expected to be very shallow.

A clear breach of the black Elliott channel is still required for any confidence in this wave count.

TECHNICAL ANALYSIS

WEEKLY CHART

Click chart to enlarge. Chart courtesy of et=”_blank”>StockCharts.com.

Volume and On Balance Volume are very bullish. But the doji candlestick last week again signals a warning. A doji on its own is not a reversal signal, but it is enough to put the trend from up into more neutral territory.

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.

Price today remains range bound, bouncing strongly up off support about 2,775. The long lower wick today looks bullish.

On Balance Volume remains bearish.

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 made a new low below the prior low of 2-3 sessions ago, but the AD line did not. Downwards movement today lacked a corresponding decline in market breadth. This divergence is bullish for the short term.

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.

Upwards movement for last week came with a normal corresponding decline in VIX. There is no new divergence.

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.

Price has made a new low today below the prior low of 2-3 sessions ago, but inverted VIX has not. Downwards movement within today’s session lacks support from a normal corresponding increase in VIX. This divergence is bullish 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 @ 08:30 p.m. EST.

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