Downwards movement was expected, but this was not what happened.
Price moved higher and remains below the invalidation point for the bear wave count.
Summary: The target is again 2,107 for upwards movement to end. Only when the channel on the hourly chart is clearly breached may confidence be had that upwards movement is over.
To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.
To see last analysis of weekly and monthly charts go here.
If I was asked to pick a winner (which I am reluctant to do) I would say the bear wave count has a higher probability. It is better supported by regular technical analysis at the monthly chart level, it fits the Grand Supercycle analysis better, and it has overall the “right look”.
New updates to this analysis are in bold.
BULL ELLIOTT WAVE COUNT
DAILY CHART – COMBINATION OR FLAT
Click chart to enlarge.
Cycle wave IV should exhibit alternation to cycle wave II.
Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV should exhibit alternation in structure and maybe also alternation in depth. Cycle wave IV may end when price comes to touch the lower edge of the teal channel which is drawn about super cycle wave V using Elliott’s technique (see this channel on weekly and monthly charts).
Cycle wave IV is may end within the price range of the fourth wave of one lesser degree. Because of the good Fibonacci ratio for primary wave 3 and the perfect subdivisions within it, I am confident that primary wave 4 has its range from 1,730 to 1,647.
If a zigzag is complete at the last major low as labelled, then cycle wave IV may be unfolding as a flat, combination or triangle.
Primary wave B or X upwards is a single zigzag. If upwards movement reaches to 2,108.44 or above, then cycle wave IV may be unfolding as a flat correction. At that point, primary wave B would meet the minimum length of 90% the length of primary wave A. If upwards movement does not meet the minimum requirement for a flat correction, then cycle wave IV may be a combination or triangle.
Primary wave B within a flat correction may make a new high above the start of primary wave A at 2,134.72 as in an expanded flat. There is no upper invalidation point for this wave count for that reason. Likewise, X waves within combinations may also move beyond the start of the first structure labelled primary wave W. There is no minimum or maximum length for an X wave within a combination.
DAILY CHART – TRIANGLE
Click chart to enlarge.
Cycle wave IV may unfold as a shallow triangle. This would provide alternation with the 0.41 zigzag of cycle wave II.
Primary wave B may be unfolding as a zigzag.
Primary wave B may move beyond the start of primary wave A at 2,134.72 as in a running triangle. There is no upper invalidation point for this wave count for that reason.
Primary wave C of a barrier or contracting triangle may not move beyond the end of primary wave A at 1,871.91.
The whole structure moves sideways in an ever decreasing range. The purpose of triangles is to take up time and move price sideways.
The hourly chart below works in exactly the same way for both of these daily charts, and so only one hourly chart for these two ideas will be presented today.
HOURLY CHART
Click chart to enlarge.
The zigzag upwards for cycle wave B or X is again incomplete. It needs to subdivide 5-3-5. The second 5 for intermediate wave (C) cannot now be seen as complete.
Within intermediate wave (C), the end of minor wave 3 is most likely as labelled. There, it has the strongest upwards momentum; within it, the middle of the third wave corresponds with the strongest bars on the histogram within MACD.
At 2,107 minor wave 5 would reach equality in length with minor wave 1. This target has a reasonable probability.
The channel drawn about primary wave B or X is a best fit. The first trend line is drawn from its start (the low of 1,871.91 labelled primary wave A or W on the daily chart) to the low of minor wave 2 here on the hourly chart. This lower edge has been tested now three times, so it is reasonably technically significant, although it is too steep a line to be highly technically significant. When that lower line is clearly breached by a full hourly candlestick below it and not touching it, then the probability of a trend change will be reasonable.
Upwards movement may continue while price remains within the channel.
As price moves higher, MACD indicates declining momentum. With momentum and volume not supporting this upwards move, it looks weak and is likely to end soon.
ALTERNATE BULL ELLIOTT WAVE COUNT
DAILY CHART
Click chart to enlarge.
It is possible to see cycle wave IV a completed flat correction. This would provide some structural alternation with the zigzag of cycle wave II.
This is a regular flat but does not have a normal regular flat look. Primary wave C is too long in relation to primary wave A. Primary wave C would be 3.84 short of 4.236 the length of primary wave A. While it is possible to also see cycle wave IV as a complete zigzag (the subdivisions for that idea would be labelled the same as the bear wave count below, daily chart) that would not provide structural alternation with the zigzag of cycle wave II, and so I am not considering it.
This idea requires not only a new high but that the new high must come with a clear five upwards, not a three.
At 2,562 cycle wave V would reach equality in length with cycle wave I. Cycle wave I was just over one year in duration so cycle wave V should be expected to also reach equality in duration. Cycle degree waves should be expected to last about one to several years, so this expectation is reasonable. It would be extremely unlikely for this idea that cycle wave V was close to completion, because it has not lasted nearly long enough for a cycle degree wave.
I added a bear market trend line drawn using the approach outlined by Magee in “Technical Analysis of Stock Trends”. When this lilac line is clearly breached by upwards movement that shall confirm a trend change from bear to bull. The breach must be by a close of 3% or more of market value. If it comes with a clear five up, then this wave count would be further confirmed.
While price remains below the bear market trend line, we should assume the trend remains the same: downwards.
Minor wave 3 should be complete. Minor wave 4 may not move into minor wave 1 price territory below 2,020.13.
BEAR ELLIOTT WAVE COUNT
DAILY CHART
Click chart to enlarge.
This bear wave count has a better fit at Grand Super Cycle degree and is better supported by regular technical analysis at the monthly chart level. But it is a huge call to make, so I present it second, after a more bullish wave count, and until all other options have been eliminated.
There are two ideas presented in this chart: a huge flat correction or a double flat / double combination. The huge flat is more likely. They more commonly have deep B waves than combinations have deep X waves (in my experience).
A huge flat correction would be labelled super cycle (a)-(b)-(c). It now expects a huge super cycle wave (c) to move substantially below the end of (a) at 666.79. C waves can behave like third waves. This idea expects a devastating bear market, and a huge crash to be much bigger than the last two bear markets on the monthly bear chart.
The second idea is a combination which would be labelled super cycle (w)-(x)-(y). The second structure for super cycle wave (y) would be a huge sideways repeat of super cycle wave (a) for a double flat, or a quicker zigzag for a double combination. It is also possible (least likely) that price could drift sideways in big movements for over 10 years for a huge triangle for super cycle wave (y).
The bear wave count sees a leading diagonal for a primary degree first wave unfolding. Within leading diagonals, the first, third and fifth waves are most commonly zigzags but sometimes may appear to be impulses. Here intermediate wave (1) is seen as a complete zigzag.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) above 2,134.72.
Intermediate wave (3) should unfold downwards when intermediate wave (2) is complete. It must move beyond the end of intermediate wave (1) and it would most likely be a zigzag.
HOURLY CHART
Click chart to enlarge.
The zigzag upwards for intermediate wave (2) is seen in exactly the same way as the zigzag upwards for primary wave B or X for the first two wave counts. The degree of labelling for this idea is one degree lower.
Intermediate wave (3) is most likely to be a zigzag, if this is a third wave within a leading diagonal. It must move beyond the end of intermediate wave (1) at 1,871.91. It is likely to move reasonably below that point.
Actionary waves within diagonals do not normally exhibit Fibonacci ratios to each other. The best target calculation method for intermediate wave (3) would be to use the ratios of minor waves A and C within it. That can only be done when minor waves A and B are complete, so that the length of minor wave A is known and the start of minor wave C is known.
TECHNICAL ANALYSIS
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Volume declines as price moves higher. Overall, this rise in price is not supported by volume, so is suspicious.
The upwards breakout above the upper horizontal line and move above the 200 day SMA is the most bullish picture from the S&P 500 for months. It gives some concern to the bear wave count, but it is not enough to fully support the very bullish alternate wave count. The picture at the monthly chart level remains very bearish. We have not had technical confirmation of an end to the bear market yet.
The black ADX line is still above 20 and rising indicating an upwards trend is in place.
The shorter Exponential Moving Average at 9 days is reasonably well showing where price is finding support.
Average True Range continues to decline. The rise in price is not accompanied by a rise in range, which is unusual. This is more typical of price behaviour during a consolidation, not a trend. ATR along with declining momentum at the hourly chart level and a decline in volume suggest that this upwards movement for price is weak and is likely to end soon.
On Balance Volume has found resistance at the bright aqua blue trend line. It may now find support at the orange line.
There is no longer any small weak divergence between price and RSI. RSI is close to overbought, but it is not there yet. It is making new highs while price moves up.
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.
To the upside, for Dow Theory, I am watching each index carefully. If any make new all time highs, that will be noted. If they all make new all time highs, then a continuation of a bull market would be confirmed. So far none have made new all time highs.
This analysis is published about 06:01 p.m. EST.
BB on UVXY starting nice compression; divergence today with SPX price action.
WOOPS! OLD R1 is 2106 not 2010
SPX was stopped at the old R1 line from last week at 2010 (New pivots in green)
And the $VIX finally filled it’s lower gap and settled on the 61.8 fib
SPX EMA : OEX is over the 85% level correction territory ), Small caps are lagging
PUT / CALL RATIO is down.
The CBOE Equity Put/Call Ratio ($CPCE) focuses on options traded on individual stocks.
CPCI (focuses on options traded on the major indices) Very different pattern but also down.
Note: PUT/CALL RATIOS are often used as contrarian indicators; The lower these go the more bearish the outlook and vice versa .
SPX INDICATORS still looking strong , even the MONTHLY is curving up a bit (Yikes!)
PS :I removed the 5, 15 & HR time frames
John, I think you have this turned around – http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:put_call_ratio
WOOPS! That R1 is at 2106
Reference armstrongeconomics.com public blog 2 Nov (below).
Pattern (1) supports Lara’s analysis of significant correction to downside.
But Armstrong also states possibility of a “Phase Transition”. Anyone know what Armstrong means by Phase Transition?
“The Dow closed neutral on our indicators for the month-end of October. We have held support below and bumping against resistance. There are only two possible patterns: (1) a slingshot move that penetrates last year’s low and swings to new highs in a blast to the upside, or (2) we simply base and then enter a Phase Transition”
http://www.armstrongeconomics.com/archives/7650
Hope this helps!
Thanks Lisa. Armstrong’s Phase Transition concept not clear to me. Possibly you would explain in a sentence or two what a Phase Transition would probably look like if occurring in our current SPX?
Armstrong defines it as “the largest possible move in the shortest compressed portion of time”. DJI already took out last year’s lows so he seems to be saying that prior to new highs SPX should do the same (pattern 1) or that sideways movement would continue prior to a “phase transition” move to the downside. I am not sure I see the logic of the argument since the “slingshot” move seems to have already occurred off the August lows and we are now only about 1% away from new all-time highs. I still think we are in a very deep, classic wave two correction. If we are, markets are going to do a lot more than just take out last year’s lows.
Gold miners (GDX & GDXJ) piercing lower B bands…should be off to the races soon…
Vern, you are expecting miners will break to downside?
I think they are putting in an intermediate bottom and so a nice bounce is probably due. Gold should move past the January highs.
Close above lower band should trigger start of move up.
Thanks.
Thanks Lara!