The internal strength of this upwards day is analysed to determine which Elliott wave count looks more likely.
Summary: The wave counts are today swapped over.
The main Elliott wave count now expects the pullback may continue lower to 2,663 or 2,579. A new low below 2,822.12 would increase the probability of this scenario. Today a lack of support from volume for upwards movement and ADX support this wave count.
Alternatively, a new high above 2,914.11 and then 2,958.08 or a 90% upwards day would support the alternate wave count. It looks at the possibility a low may be in place, a target is at 3,336. Today a bullish signal from On Balance Volume and a Harami candlestick pattern support this wave count.
The biggest picture, Grand Super Cycle analysis, is here.
Monthly charts were last published here, with video here. There are two further alternate monthly charts here, with video here.
ELLIOTT WAVE COUNTS
The two weekly Elliott wave counts below will be labelled First and Second. They may be about of even probability. When the fifth wave currently unfolding on weekly charts may be complete, then these two wave counts will diverge on the severity of the expected following bear market. To see an illustration of this future divergence monthly charts should be viewed.
FIRST WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
The basic Elliott wave structure consists of a five wave structure up followed by a three wave structure down (for a bull market). This wave count sees the bull market beginning in March 2009 as an incomplete five wave impulse and now within the last fifth wave, which is labelled cycle wave V. This impulse is best viewed on monthly charts. The weekly chart focusses on the end of it.
Elliott wave is fractal. This fifth wave labelled cycle wave V may end a larger fifth wave labelled Super Cycle wave (V), which may end a larger first wave labelled Grand Super Cycle wave I.
The teal Elliott channel is drawn using Elliott’s first technique about the impulse of Super Cycle wave (V). Draw the first trend line from the end of cycle wave I (off to the left of the chart, the weekly candlestick beginning 30th November 2014) to the end of cycle wave III, then place a parallel copy on the end of cycle wave II. This channel perfectly shows where cycle wave IV ended at support. The strongest portion of cycle wave III, the end of primary wave 3, overshoots the upper edge of the channel. This is a typical look for a third wave and suggests the channel is drawn correctly and the way the impulse is counted is correct.
Within Super Cycle wave (V), cycle wave III is shorter than cycle wave I. A core Elliott wave rule states that a third wave may never be the shortest. For this rule to be met in this instance, cycle wave V may not be longer in length than cycle wave III. This limit is at 3,477.39.
Cycle wave V may subdivide either as an impulse or an ending diagonal. Impulses are much more common. I have charted the possibility of an ending diagonal and will keep it updated, but the probability at this stage is too low for daily publication. It too needs new all time highs and so with no divergence at this stage it shall not be published.
The daily charts below will now focus on all of cycle wave V.
In historic analysis, two further monthly charts have been published that do not have a limit to upwards movement and are more bullish than this wave count. Members are encouraged to consider those possibilities (links below summary) alongside the wave counts presented on a daily and weekly basis.
MAIN DAILY CHART
Click chart to enlarge.
It is possible that primary wave 2 may not be over and continue further as an expanded flat correction. Within the expanded flat, intermediate wave (B) is a 1.33 length of intermediate wave (A), within the most common range of up to 1.38.
Intermediate wave (C) for this wave count should now move below the end of intermediate wave (A) to avoid a truncation. The target calculated would expect this.
If price falls through the first target, then the next target may be the 0.618 Fibonacci Ratio about 2,579.
Strong and final support may be expected at the lower edge of the teal Elliott channel.
MAIN HOURLY CHART
Click chart to enlarge.
Intermediate wave (C) must subdivide as a five wave structure. Minor waves 1 through to 3 within intermediate wave (C) may be complete.
Minor wave 4 may not move into minor wave 1 price territory above 2,958.08.
A channel is redrawn about intermediate wave (C) using Elliott’s second technique: draw the first trend line from the ends of minor waves 2 to 4, then place a parallel copy on the end of minor wave 3. Minor wave 5 may find support about the lower edge.
ALTERNATE DAILY CHART
Click chart to enlarge.
Cycle wave V must subdivide as a five wave motive structure. Within that five wave structure, primary waves 1 and 2 may be complete.
Primary wave 3 may only subdivide as an impulse. Within primary wave 3, intermediate waves (1) and (2) may now be complete. Intermediate wave (2) may have ended close to the 0.618 Fibonacci ratio of intermediate wave (1).
A target is calculated for primary wave 3 that fits with the higher limit for cycle wave V.
If intermediate wave (2) continues lower, then it may not move beyond the start of intermediate wave (1) below 2,728.81.
ALTERNATE HOURLY CHART
Click chart to enlarge.
It is possible that intermediate wave (2) may today be a complete zigzag, ending close to the 0.618 Fibonacci Ratio of intermediate wave (1). There is no Fibonacci Ratio between minor waves A and C.
A best fit channel is drawn about intermediate wave (2). The channel is breached at the end of this session. This is a very small piece of information which may offer a little support to this wave count today.
SECOND WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This weekly chart is almost identical to the first weekly chart, with the sole exception being the degree of labelling.
This weekly chart moves the degree of labelling for the impulse beginning in March 2009 all down one degree. This difference is best viewed on monthly charts.
The impulse is still viewed as nearing an end; a fifth wave is still seen as needing to complete higher. This wave count labels it primary wave 5.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Last week a very strong Bearish Engulfing candlestick pattern supports the alternate Elliott wave count. It has good support from volume.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Conditions are now just oversold, but this may reach more extreme before a low is found.
Lows for this market are often V shaped: a 90% downwards day at or near the low followed by a 90% upwards day. Today’s upwards day is not strong enough for a common format at a low for this market. For this reason this daily candlestick looks more like a pause within an ongoing downwards trend.
The signal today from On Balance Volume supports the alternate Elliott wave count.
The measuring gap should remain open until the target at 2,787 is reached. If it is closed in the next day or so so then it would correctly be renamed an exhaustion gap and a low should then be in place. The gap would be closed with a new high above 2,914.11.
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.
Bear markets from the Great Depression and onwards have been preceded by an average minimum of 4 months divergence between price and the AD line with only two exceptions in 1946 and 1976. With the AD line making new all time highs again this week, the end of this bull market and the start of a new bear market is very likely a minimum of 4 months away, which is mid November 2019.
In all bear markets in the last 90 years there is some positive correlation (0.6022) between the length of bearish divergence and the depth of the following bear market. No to little divergence is correlated with more shallow bear markets. Longer divergence is correlated with deeper bear markets.
If a bear market does develop here, it comes after no bearish divergence. It would therefore more likely be shallow.
Last week price has made a new low below the short term low two weeks prior, but the AD line has failed to make a corresponding new low by a small margin. This divergence is bullish for the short 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.
Breadth should be read as a leading indicator.
This pullback still has bullish divergence. Today both price and the AD line moved higher, 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.
The all time high for inverted VIX (which is the same as the low for VIX) was on 30th October 2017. There is now nearly one year and nine months of bearish divergence between price and inverted VIX.
The rise in price is not coming with a normal corresponding decline in VIX; VIX remains elevated. This long-term divergence is bearish and may yet develop further as the bull market matures.
This divergence may be an early warning, a part of the process of a top developing that may take years. It may not be useful in timing a trend change.
Last week price and inverted VIX have both moved lower. Neither have made a new swing low below the prior swing low of the weeks beginning 28th May / 3rd June.
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.
Inverted VIX has made a new low below the last major low of the 3rd of June, but price has not. This divergence is bearish, but it is not confirmed by the AD line.
Today both inverted VIX and price have moved higher. There is no new divergence.
DOW THEORY
Dow Theory confirmed a bear market in December 2018. 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 having moved higher following a Dow Theory bear market confirmation, Dow Theory would confirm a bull market if the following highs are made:
DJIA: 26,951.81 – a close above this point has been made on the 3rd of July 2019.
DJT: 11,623.58 – to date DJT has failed to confirm an ongoing bull market.
S&P500: 2,940.91 – a close above this point was made on the 29th of April 2019.
Nasdaq: 8,133.30 – a close above this point was made on the 26th of April 2019.
Published @ 07:48 p.m. EST.
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Follow my two Golden Rules:
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New updates to this analysis are in bold.
on my charts minor 4 in the main case looks far bigger than minor 2 leading me to suspect that the bull alternate could be in play
Updated main hourly chart:
While the measuring gap remains open, the trend remains down. Assume the trend remains the same, until proven otherwise.
For this particular market its fourth wave can be reasonably more time consuming than its second waves (Gold is the other way around). I’m going to see todays sideways movement as a continuation of minor 4, until proven otherwise.
Updated alternate hourly chart:
Today (8/6) $NYMO (McClellan Oscillator) closed just below -50 which is above its lower BB. VIX closed below its upper BB. This gives us the first step in a McClellan Oscillator ‘Buy’ signal. Note: I have seen this signal fail. Unfortunately for the bulls, SPX closed below its lower BB. The buy signal must be confirmed by $NYMO moving above -40, past zero and to exceed +20 in the next few days. If that happens it would be the final confirmation similar to the one we got in late Dec. 2018 into the first few days of 2019. I believe the final confirmation will only happen if we get a day like 90% up to which Lara has eluded. So the next day or two continue to be critical. Will we go below 2800 as the main count suggests? Or, will be exceed 2914 as today’s alternate requires? I remain uncommitted either way and must be patient for the market to show its hand.
I should add that the daily VIX buy signal consists of three steps; 1) Close above upper BB, 2) close inside or below upper BB, and 3) close below the close of day 2. Therefore, today we are looking for a VIX close below yesterday’s close of 20.17.
Hard to see what “news” would goose this market upward sharply to fulfill the bullish signal. The Fall ’18 sell off seemed largely predicated on…nothing. Or was it a tiny rate hike. Then the final massive spike in response to merely a sentence or two from Powell; pure herd fear mentality. So to me, that was a vast over-swing. This sell off…I’d say there are much more significant economic clouds on the immediate horizon this time, and a sudden sentiment shift back to a strong bullish mode seems much less likely.
I’ll try to forget all that now and just trade whatever the market dishes up here…
I totally agree with you Kevin, but every V bottom I’m left scratching my head trying to figure out an explanation and it usually comes weeks or even months later. Meaning, people (institutions) will know the reason to buy far before we do so yes, price action and the charts are the only way to go.
Markets are pricing in 100% Sept rate cut, I think it was about 50/50 today whether it be 25 bps or 50 bps. Rate curs all around the world.
All that to say, the bull case can only be that which has driven this market (via corporate profits) through every surge over the past 10 years. QE. I am fully expecting QE4 in the next 6-12 months. The question is whether market will sell off first, or if we will just skip that this time and launch straight into bull mode. The trade war will be the excuse to rush into QE4 so I still expect some sell-off here. Eventually this all ends sadly.
REPRINTED FROM YESTERDAY’S FORUM POSTS, LAST ONE POSTED
Considering my comment to start the day, Kevin’s polite disagreement with me is right on. We did have warning that a sharp correction may be forthcoming. We had 1) Lara’s EW alternate count, 2) Lara’s TA showing several bearish divergences or indicators which perhaps might have been given more weight, and 3) rationally thinking, I should have given more weight to the stall at SPX 3000 while expecting we were developing a 3rd of a 3rd for many degrees which showed no increase in momentum. It just took too long to develop. Furthermore, every day since the turn down began, we have been given significant information and analysis from Lara indicating the current correction could go father than expected.
My statement at the beginning of the day that this correction seemed to ‘come out of nowhere’ was really picking up on ari’s post in 1st place. But the fact remains, whenever we enter a period of uncertainty like now, it so often ‘seems’ to come out of nowhere.
I will post this on tonight’s forum after Lara’s daily update so it will be printed in a more current time. At that time I will post regarding the McClellan Oscillator and a potential buy SPX signal. Lara’s TA information will be crucial.
Oh man crazy times …..