Downwards movement was expected as most likely, which is what happened.
Summary: The probability that a Dead Cat Bounce is over is very high, but not fully confirmed. A clear breach of the upwards sloping aqua blue trend line on the daily charts would confirm it. Downwards movement is showing again an increase in volume. This next wave down is either a middle of a third wave to a target at 1,638, or a fifth wave to a target at 1,821. At this stage, I favour the third wave idea. Momentum will tell us which one is correct.
To see an outline of the bigger picture on monthly and weekly charts click here.
Changes to last analysis are bold.
BULL ELLIOTT WAVE COUNT
DAILY CHART
Click chart to enlarge.
Primary wave 4 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. Primary wave 4 has just completed its 17th 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.
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.
At the daily chart level, this wave count sees primary wave 4 as a possible regular flat correction: intermediate wave (B) is a 98% correction of intermediate wave (A). However, regular flats normally have C waves which are close to equality with their A waves, and they normally fit nicely within parallel channels. Here intermediate wave (C) is much longer than (A) and will still move lower as its structure is incomplete. When the five wave impulse down for intermediate wave (C) is complete, then I will revisit the structure of primary wave 4 which may not be a flat. The structure at the daily chart level so far fits for the very bearish wave count better than this wave count.
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.
Full and final confirmation of a bear market (mid term) 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.
I am drawing the bright aqua blue trend line on all charts in exactly the same way. It is this line which I want to use to confirm the end of this correction and the resumption of the downwards trend. When there is a break below this line, and if it comes with higher volume, then I would have some confidence that the trend has resumed.
There was a triangle within this correction, and I expect it was as labelled here. Extend the triangle trend lines outwards. The point in time at which they cross over may see a trend change. This does not always work, but it works often enough to be a trick to look out for.
Today I am swapping over yesterday’s new alternate with the main wave count. This current correction looks more like a second wave than a fourth wave. To see it as a fourth wave correction has inadequate alternation in depth and structure. This means that the next wave down is most likely to unfold as a third wave at least at two wave degrees, which should show an increase in downwards momentum beyond that seen for the first wave labelled minute wave i.
At 1,638 minute wave iii would reach 1.618 the length of minute wave i.
HOURLY CHART
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Minor wave 2 was a double combination which lasted 15 days. Minute wave ii is a zigzag which lasted 18 days. Although minute wave ii is longer in duration than minor wave 2 one degree higher, the difference is not great and so is acceptable. The wave count has the right look at the daily chart level.
Minute wave ii is a complete zigzag, and within it minuette wave (b) subdivides perfectly as a nine wave triangle. Minute wave ii is deep, 0.65 the length of minute wave i.
I would still want to see price break below the aqua blue trend line which is a conservative support line. I would have confidence in a downwards breakout once that is breached.
Minute wave iii should show a strong increase in momentum beyond that seen for minute wave i.
ALTERNATE BULL ELLIOTT WAVE COUNT
DAILY CHART
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At this stage, I expect this idea has a lower probability, so it will be reduced to an alternate.
Minor wave 2 lasted just three days and is seen as over earlier. Minute wave ii is a double zigzag lasting four days.
If this current correction is minute wave iv, then there are three big problems.
1. It would be a single zigzag, so there would be inadequate alternation between the double zigzag of minute wave ii.
2. It would be deep at 0.65, so there would be inadequate alternation with the deep 0.83 correction of minute wave ii.
3. It would be much longer in duration, lasting 15 days, than minute wave ii which lasted only 4 days.
This idea is possible, but I would judge it to have a low probability. If the momentum of the next wave down does not show a strong increase, then this would be an explanation.
At 1,821 minor wave 3 would reach 4.236 the length of minor wave 1.
FIRST HOURLY CHART
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Alternation is a guideline, not a rule, and is almost always seen to one degree or another and should be expected. However, it is not clear or perfect so all possibilities should be considered.
The subdivisions for the hourly chart are here exactly the same as for the main hourly chart. The only difference is the correction is seen as a fourth wave and not a second wave.
SECOND HOURLY ELLIOTT WAVE COUNT
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This idea now has a lower probability. The purpose of combinations is to move price sideways, so they should have a sideways look and not a clear slope. This correction now has a clear upwards slope and does not look like a combination.
There was a triangle in recent sideways movement. The question is: what degree and what wave should it be labelled? All possibilities should be considered, even those which look unlikely.
Minute wave ii was a deep 0.83 double zigzag. Given the guideline of alternation minute wave iv may be expected to be more shallow and most likely a flat, combination or triangle.
Here minute wave iv may be seen as a double combination.
The first structure in the double is now seen as a zigzag. This means the second structure in the double is now seen as a flat correction for a double combination.
Within a possible flat for minuette wave (y), subminuette wave a must subdivide as a three and subminuette wave b must retrace a minimum 90% of subminuette wave a. Subminuette wave b has reached below 1,956 meeting the minimum requirement.
Subminuette wave b may make a new low below the start of subminuette wave a at 1,949.13 as in an expanded flat. There is no rule which places a limit on the length of subminuette wave b within the flat correction, but there is a convention within Elliott wave that when the B wave reaches twice the length of the A wave the probability of a flat unfolding is so low the idea should be discarded. Here that price point would be at 1,877.
At 2,025 subminuette wave c would reach equality in length with subminuette wave a.
Minute wave iv may not move into minute wave i price territory above 2,052.09.
BEAR ELLIOTT WAVE COUNT
DAILY CHART
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A big impulse down must begin, for this bear wave count, so a series of overlapping first and second waves should now be complete. The idea for the bull wave count (a flat correction unfolding downwards) does not work for this bear wave count.
A new low below 1,370.58 would invalidate the bull 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
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Today’s strong red candlestick comes with a strong increase in volume. Again, as price moves lower it is supported by an increase in volume. This again supports the bear wave count. Volume for Friday is still slightly below a prior upwards day which began the correction on 26th August. If we see another strong downwards day next week which shows further increase in volume beyond the 26th August, then the volume profile would be fully bearish.
Kaufman’s Moving Average has provided resistance to upwards movement.
ADX is flat indicating the market is not currently trending. ADX does tend to be a lagging indicator.
The green trend line on On Balance Volume is very shallow, repeatedly tested, and reasonably technically significant. The trend line has shown perfectly when price would stop upwards movement, and it ended when OBV again touched that trend line. Resistance at that trend line is reinforced. OBV has now breached the short upwards sloping bright aqua blue line, another small bearish indicator.
Price has returned to below the horizontal line of resistance and moved lower. Resistance remains at that trend line.
Stochastics has returned from overbought. There is room for the market to rise or fall. A range bound system would be expecting a downwards swing to continue and to not end until Stochastics shows oversold and price finds support.
I am adding RSI again. I will use RSI on the daily chart to help indicate when the next downwards wave ends. When RSI shows oversold then downwards movement may end. RSI is currently well above oversold, so there is plenty of room for the market to fall.
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 07:12 p.m. EST.
Looks like attempt to fill the gap from last Thursday’s close halted at about the 50% re-tracement. Bears have to deliver a big fat red one today if this is indeed a third down
Not necessarily. This feels counterintuitive but sometimes third waves start off a little slow. It’s the middle which should be really strong.
I’ve seem this on Gold often, and on the S&P sometimes.
Of course, alternately the correction may not be over and price may yet drift sideways some more. We don’t have enough downwards movement to confirm this correction is over.
You are right of course. Interminable one , two initial waves seem to be the recent pattern of motive waves down.
Hello Lara, 3 questions: 1) BULL ELLIOTT WAVE COUNT by DAILY CHART, wave 4 has a target for 1730-1647. Now, the wave III part of the liquidation account of the wave 4, the target is 1638. I do not understand 2) The duration of the wave III would be estimated how much? 3) If the assumption of wave III is validated, the final wave should go much lower. Thank you
If the target for minute iii at 1,638 is met then the target for primary 4 would be inadequate.
I see your point, I think I’ll remove the target for primary wave 4 to remove confusion. I would rather calculate each part of the wave as it unfolds than try to calculate the final end too early.
Durations are hard to estimate for the S&P because it doesn’t often exhibit Fibonacci numbers nor ratios between the durations of each wave. Any estimate would be very rough only. I would expect it may last about two weeks.