A new low below 1,954.09 provided price confirmation that the upwards wave was over and completed as a “three”.

Both hourly wave counts remain valid. Their targets are different, but they expect the same direction next.

Summary: A strong downwards day with increasing volume indicates the next wave is here earlier than I had expected. The main (preferred) hourly wave count expects a very strong third wave down to develop to a target at 1,611. The alternate expects a fifth wave down to show a slowing of momentum to a target at 1,757.

To view the last weekly chart click here.

Changes to last analysis are bold.

ELLIOTT WAVE COUNT

Click chart to enlarge.

The S&P has seen a primary degree (or for the bear count below a Super Cycle degree) trend change.

Primary wave 2 was a relatively shallow 0.41 zigzag lasting 12 weeks. Primary wave 4 may be more shallow, most likely to be a flat, combination or triangle, and may be longer lasting than primary wave 2 as these types of sideways corrective structures tend to be more time consuming than zigzags. Primary wave 4 may complete in a total Fibonacci 21 weeks. So far primary wave 4 has just begun its 15th week, but it may not exhibit a Fibonacci duration because the S&P does not reliably do this. Time estimates may only be taken as a very rough guide.

Primary wave 4 may reach down into the fourth wave of one lesser degree price range from 1,730 to 1,647, but it may not be that deep. It may end only about the 0.236 Fibonacci ratio of primary wave 3 at 1,815.

Within primary wave 4, it may be that intermediate waves (A) and (B) are both complete as three wave structures indicating a flat may be unfolding. Intermediate wave (C) down must be a five wave structure; it looks like it is unfolding as an impulse. For now I will leave this degree as is, but depending on where intermediate wave (C) ends I may move it back down one degree. It is also possible that only minor wave A may be unfolding as a flat correction.

If this impulse does not bring price down to the target range or the lower edge of the big channel on the weekly chart, then it may only be intermediate wave (A) of a bigger flat for primary wave 4. If it does bring price lower to the target range, then it may be primary wave 4 in its entirety.

This wave count now has some confirmation at the daily chart level with a close more than 3% of market value below the long held bull market trend line.

Full and final confirmation would come with:

1. A clear five down on the daily chart.

2. A new low below 1,820.66.

As each condition is met further confidence may be had in the bigger picture for this wave count.

Primary wave 4 may not move into primary wave 1 price territory below 1,370.58. Invalidation of this bull wave count (still bullish at cycle degree) would be confirmation of the bear wave count.

MAIN HOURLY ELLIOTT WAVE COUNT

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A new low below 1,954.09 may not be a fourth wave correction within a new impulse developing to the upside, because it would now be back into its counterpart first wave price territory. The upwards movement labelled here minuette wave (ii) looks now like a completed three wave structure.

The final fifth wave up of micro wave v to complete minuette wave (ii) looks like a three on the hourly chart, but is ambiguous on the five minute chart and may subdivide as either a three or a five, although it looks best as a three. (Yesterday, this part of the structure was what led me to believe we should see a final high.)

Because this upwards correction subdivides nicely and has a typical look as a zigzag, and because it is deep at 0.53 of minuette wave (i), this is most likely a second wave correction. For this reason, this main hourly wave count has a higher probability than the alternate below.

At 1,611 minuette wave (iii) would reach 1.618 the length of minuette wave (i). If this target is wrong, then it may not be low enough. Bear markets for the S&P have a tendency to move very fast and have very extended third waves. The next target to use, if price just falls through the first, would be at 1,374, but at this stage that does seem to be rather low.

Draw a base channel about minuette waves (i) and (ii). Along the way down, upwards corrections should find resistance about the upper trend line. The middle of the third wave should have the power to break through support at the lower edge of the channel. If that happens, then the probability of this main hourly wave count would further increase over the alternate.

Within minuette wave (iii), there is still another second wave correction to come. Minuette wave (iii) may only subdivide as a simple impulse. Subminuette wave ii may not move beyond the start of submineutte wave i above 1,993.48.

At this stage, it is highly likely minuette wave (ii) is over as a single zigzag. Technically it could continue further as a double zigzag, but if it did, then it would become out of proportion to minute wave ii which lasted four days and minor wave 2 which lasted three days . So far minuette wave (ii) lasted four days, so the proportions look right on the daily chart. It is already deep, so a second zigzag is not required to move it deeper. The force of the middle of a strong third wave would be expected to force minuette wave (ii) to be more shallow and brief than a second wave would normally be.

ALTERNATE HOURLY ELLIOTT WAVE COUNT

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It remains possible that this upwards movement is a fourth wave because it remains below first wave price territory at 2,052.09. However, there is not enough alternation in depth of correction between minute waves ii and iv. Minute wave ii was deep at 0.83 of minute wave i. Minute wave iv is now also deep, at 0.53 of minute wave iii.

There is a problem with structure here too. Minute wave ii was a double zigzag. Minute wave iv is highly unlikely to be a single or multiple zigzag; there would be inadequate alternation with structure of minute wave ii. Minute wave iv may technically fit as a regular flat correction, because within this upwards movement minuette wave (a) may subdivide as a three on the five minute chart and minuette wave (b) is over 90% the length of minuette wave (a) meeting the rules for a flat correction.

The problem is in the length of minuette wave (c). This would be a regular flat, because minuette wave (b) is less than 110% the length of minuette wave (a), and regular flats normally fit nicely within their channels and normally have C waves which are close to even in length with their A waves. This one is too long to look like a normal regular flat.

Because of these problems, I judge this alternate to still have a lower probability than the main hourly wave count. This is important in figuring out what should happen next. It is less likely that the next wave down will exhibit a slowing of momentum for a fifth wave than it is to exhibit highly explosive movement as the middle of a third wave.

At 1,757 minute wave v would reach equality in length with minute wave iii. Within minute wave v, minuette wave (ii) is yet to arrive. It should find resistance at the upper edge of the channel which is exactly the same as the main hourly wave count. Minuette wave (ii) may not move beyond the start of minuette wave (i) above 1,993.48.

BEAR ELLIOTT WAVE COUNT

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The subdivisions within cycle waves a-b-c are seen in absolutely exactly the same way as primary waves 1-2-3 for the main wave count.

In line with recent Grand Super Cycle wave analysis, I have moved the degree of labelling for the bear wave count all up one degree.

This bear wave count expects a Super Cycle wave (c) to unfold downwards for a few years, and if it is a C wave it may be devastating. It may end well below 666.79.

However, if this wave down is a Super Cycle wave (y), then it may be a time consuming repeat of the last big flat correction with two market crashes within it, equivalent to the DotCom crash and the recent Global Financial Crisis, and it may take another 8-9 years to unfold sideways.

For this bear wave count a big impulse down must begin, so a series of overlapping first and second waves should now be complete. The new idea for the first wave count does not work for this bear wave count.

A new low below 1,370.58 would invalidate the first wave count confirming a huge market crash. Before that price point is passed though, structure should be a strong indication that this bear wave count would be correct. It is supported by regular technical analysis at the monthly chart level.

TECHNICAL ANALYSIS

Click chart to enlarge. Chart courtesy of StockCharts.com.

Monthly Chart: A long held trend line from the end of the big low at 666.79 in March 2009, to the next big swing low at 1,074.77 in October 2011, has been breached and now provides resistance.

Volume has been falling during this bull market spanning six years and five months. This rise in price is not supported by volume, so is suspicious at the monthly chart level.

During the bull market of the last six and a half years, the majority of downwards corrections saw a decline in volume at the monthly chart level as the final low was reached. At this time, there is no decline in volume; the fall in price is supported by a rise in volume at the monthly chart level which indicates the downwards movement is probably not over yet.

Back to November 2014, there is now double negative divergence between price and RSI at the end of this movement. This pattern was last seen just prior to the DotCom crash and the GFC. In both of those instances there was also a failure swing by RSI, which appears here too.

On Balance Volume shows slight negative divergence with price. OBV is coming to touch its long held green trend line. If OBV breaches that trend line, then the regular TA picture will be even more bearish.

At the monthly chart level, this regular technical analysis favours the bear wave count

The last two bear markets for the S&P, that of the Dotcom crash from September 2000, to October 2002, and the Global Financial Crisis from October 2007, to March 2009, were reliably indicated as complete by RSI on the weekly and monthly chart. I will use this indicator this time to see when this bear market could be complete.

As each of those last two bear markets ended, RSI showed oversold on the monthly chart level plus had one divergence with the final month: as price moved lower RSI turned up. That was the end.

So far RSI is nowhere near oversold. There is plenty of room for price to fall.

Click chart to enlarge. Chart courtesy of StockCharts.com.

Daily Chart: A strong downwards day for Tuesday comes with an increase in volume. Again, this fall in price is supported by volume and is not suspicious. The prior rise in price last week came on declining volume, so it was suspicious. Volume is still clearly indicating that there is a downwards trend.

ADX continues to agree. The black ADX line continues to rise and the red -DX line is above the green +DX line indicating there is a strengthening trend and it is down.

On Balance Volume is bearish while it remains below the green trend line.

A note on Dow Theory: for the bear wave count I would wait for Dow Theory to confirm a huge market crash. So far the industrials and the transportation indices have made new major swing lows, but the S&P500 and Nasdaq have not.

S&P500: 1,820.66
Nasdaq: 4,116.60
DJT: 7,700.49 – this price point was breached.
DJIA: 15,855.12 – this price point was breached.

This analysis is published about 9:57 p.m. EST.