Downwards movement was expected for Wednesday. A red candlestick with a small real body moved price sideways.

Summary: I expect downwards movement again tomorrow. Corrections along the way down may find resistance first at the aqua blue trend line, or at the small downwards sloping acceleration channel on the hourly chart. The preferred wave count sees the middle of a strong third wave down approaching.

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

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Note: I am aware that the candlestick for yesterday is not on this chart. It has gone AWOL from the Google / Yahoo data feed. Occasionally this happens with this feed, so I supplement the analysis with StockCharts partly for this reason. When this data feed sees candlesticks go AWOL they sometimes come back.

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 is in its 18th 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 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.

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.

The Dead Cat Bounce which may have ended five trading days ago 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.

Every day I look at the structure from the all time high on this daily chart to see if I can see a complete corrective structure for primary wave 4. So far I cannot see a solution. My conclusion is price needs to move lower to complete the structure. As soon as I can see a solution which meets all Elliott wave rules I will publish it.

HOURLY CHART

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The biggest change today on the hourly chart is how I am drawing the best fit channel about this downwards movement. Today the channel is slightly redrawn.

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.

Price has moved below the aqua blue trend line providing a little confidence that the correction for minute wave ii is over. When there is a full daily candlestick below that line and not touching it, then I would have full confidence the correction is over and the next wave down is underway. Today the line is providing resistance at the hourly chart level. Tomorrow I would expect price to remain below this line.

If price moves above that line, then the next trend line to provide resistance may be the upper edge of the best fit violet channel.

Minute wave iii should show a strong increase in momentum beyond that seen for minute wave i.

If subminuette wave ii continues any higher, it may not move beyond the start of subminuette wave i above 1,979.64.

The triangle trend lines will cross over at the start of tomorrow’s session, which may be the start of a strong downwards movement. If there is a trend change, then it may be from recent small upwards movement to some more downwards movement.

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.

The final target for this idea for primary wave 4 is to see it end within the price territory of the fourth wave of one lesser degree. Intermediate wave (4) has its range from 1,730 to 1,647.

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 is now a 1.28 length of subminuette wave a indicating minuette wave (y) may be an expanded flat. At 2,045 subminuette wave c would reach 1.618 the length of subminuette wave a. This target would see minute wave iv have an even steeper slope.

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.

Minute wave iv may not move into minute wave i price territory above 2,052.09.

Today I would still judge this alternate wave count to have a very low probability; it looks wrong (the combination is not moving sideways), and minute wave iv is too deep for alternation with minute wave ii and minute wave iv is now grossly disproportionate to minute wave ii. I am publishing this idea today primarily because it is the only bullish wave count (short term) that I can see.

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: The aqua blue trend line continues to hold price up. This may be stalling the start of the downwards breakout. It is concerning though that today’s small candlestick with a small real body comes on lighter volume. This candlestick looks corrective.

Overall though it is still downwards days which have stronger volume, particularly the recent session for 18th September.

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 10:27 p.m. EST.