Downwards movement was expected, but it remains within the prior range of sideways movement. There has been no breakout yet.
Summary: Some downwards movement to find support at the lilac / purple trend line is expected. If this correction ends in a total Fibonacci 34 sessions, it may end on the 2nd of February. Thereafter, the bull market should resume.
This bull market is strong and healthy. Use this correction as another opportunity to join the trend.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
MAIN ELLIOTT WAVE COUNT
DAILY CHART
Click chart to enlarge.
Intermediate wave (4) is exhibiting alternation with intermediate wave (2). Intermediate wave (2) is a double zigzag and intermediate wave (4) is an incomplete expanded flat.
Along the way up to the final target at 2,500 a more time consuming fourth wave correction for primary wave 4 would be expected for this wave count.
The purple trend line is the most important piece of technical analysis on all charts. Draw it carefully from prior all time highs of 2,134.28 on the 21st of May, 2015, to 2,193.81 on the 15th of August, 2016. Extend it out. Daily charts are on a semi log scale.
The correction for intermediate wave (4) should end if price comes down to touch the purple trend line.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,193.81.
At this stage, intermediate wave (4) has lasted 26 sessions. With the very slow rate of this correction it may now be possible for it to continue for another 8 sessions to total a Fibonacci 34. This would see it end on the 2nd of February.
Minor wave B will now be seen as a triangle. This fits recent sideways movement very well. Minor wave A lasted 12 sessions, just one less than a Fibonacci 13, and minor wave B lasted exactly a Fibonacci 13 sessions. Minor wave C may last a Fibonacci 5 or 8 sessions, with 8 more likely if intermediate wave (4) is to be close to a Fibonacci 34 sessions in total.
HOURLY CHART
Click chart to enlarge.
This idea was new in last analysis and today it will be the only hourly chart.
Minor wave B fits best as a regular contracting triangle. Minor wave C downwards must subdivide as a five wave structure and may end when price finds support at the purple trend line.
A new high above 2,278.65 would invalidate the triangle.
A new low below 2,254.28 would add confidence to this wave count. At that stage, the alternate idea published below would be invalidated.
FIRST ALTERNATE ELLIOTT WAVE COUNT
DAILY CHART
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What else could be happening if the main wave count is invalidated by a new high above 2,278.65?
It is possible that intermediate wave (3) is not over and is extending. Within intermediate wave (3), minor wave 5 may be continuing.
However, minor wave 3 for this idea is shorter than minor wave 1. This indicates minor wave 5 should not be extending and must be shorter than minor wave 3, so that the core Elliott wave rule stating a third wave may not be the shortest is met. For this reason, it does not look right that the subdivisions within minor wave 5 are so time consuming and showing up on the daily chart. This is what happens when impulse waves extend but minor wave 5 cannot be extended for this idea.
Within minute wave iii, no second wave correction may move beyond the start of its first wave below 2,254.25.
This wave count is published in the spirit of always considering various possibilities. What if price breaks out upwards from the current consolidation? What if a retest of support at the purple line does not happen?
Minor wave 5 is limited to no longer than equality in length with minor wave 3 at 2,323.71.
SECOND ALTERNATE ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
What if the main wave count is wrong? What if cycle wave V is complete already? Does that fit?
Yes, it does. But this wave count has very little support from classic technical analysis.
If price makes a new low below 2,193.81, then a variation of this wave count would be the new main wave count. At that stage, the degree of labelling within cycle wave V would be moved all down one degree. Only primary wave 1 of cycle wave V may be over.
I am discarding the idea that primary wave 5 may continue much further. It cannot because the core Elliott wave rule stating a third wave may not be the shortest within an impulse must be met. Here, primary wave 3 is shorter than primary wave 1 by 60.94 points. Primary wave 3 may not be the shortest wave, so primary wave 5 is limited to no longer than equality in length with primary wave 3 at 2,286.92. So far primary wave 5 is 4.82 points shorter than primary wave 3, so thus far the rule is met.
Only a new low below 1,810.10 could finally confirm this wave count. At that stage, downwards movement could not be a second wave correction within cycle wave V, so cycle wave V would then have to be over. Only at that point would price indicate a multi generational trend change has arrived. Dow Theory would also need confirmation from DJIA and DJT to confirm such a large trend change.
When cycle wave V is over, it would complete a Grand Super Cycle wave. A trend change from bull to bear would be expected, a once in a multi generational bear market. This wave count expects to see a huge market crash, bigger than the Great Depression. The size of this trend change absolutely requires price confirmation and technical indication before any confidence at all could be had in a wave count such as this.
This wave count does not have support from Lowry’s. They see an increase in market breadth is currently supporting the rise in price. Normally, market breadth begins to diverge from price 4-6 months prior to a final high and a change from a bull to a bear market. There is no divergence at all at this point in time.
ADX at the monthly chart level does not support this wave count. This trend is not extreme: ADX is below 20 and increasing at the monthly chart level. At market highs ADX is most often extreme (not always, it wasn’t in September 2007).
The only piece of technical analysis I can see at this stage, which supports this wave count, is strong multi month divergence with RSI at the monthly chart level. This is common before a turn from a bull to bear market. However, this divergence can persist for very long periods of time. RSI and price exhibited divergence, for 45 months, prior to the high of March 2000 going back to June 1996. This is a warning of a coming bear market, but it is not particularly useful for timing.
At this time, price and RSI at the monthly chart level exhibit divergence back to November 2013, a period now of 37 months.
This wave count is just one possibility in the world of many possibilities. It does not have a good probability, I would judge it to be as low as 5-10%. However, low probability does not mean it cannot happen. Sometimes low probability outcomes do occur; when they do, they are never what was expected. This wave count is published in the spirit of always considering possibilities, with the knowledge that nothing is impossible.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A very small range inside week completes a small green doji candlestick. Price is consolidating.
A decline in volume last week supports the idea that price is consolidating. This supports the main Elliott wave count that sees a correction unfolding for intermediate wave (4).
On Balance Volume last week has come down to the long held yellow support line. This line goes back to September 2015 and it has been tested four times so far. This would be the fifth test. This line has good technical significance. It looks like OBV may be breaking below this line, but there is a little leeway in exactly how this line is drawn, so a clearer break is required before it may be read as a bearish signal.
A break below the long yellow support line by OBV would be a good bearish signal supporting the main Elliott wave count.
RSI is not extreme. There is room for the upwards trend to continue.
ADX is still increasing and is above 15 indicating the market may be in the early stages of an upwards trend.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
It still looks like a bull flag pattern is unfolding. The flag pole is short, only 48.48 points, so a target using the measured rule would be about 2,323.
Price moved lower today but remains within the flag pattern trend lines.
ADX is declining and now below 20. The -DX line today crossed above the +DX line indicating a potential trend change. The black ADX line must turn upwards and increase to indicate a new downwards trend though. While it remains with a negative slope, then it indicates the market is consolidating.
ATR is flat agreeing with ADX that this market is consolidating.
RSI exhibits divergence with price at the last all time high, which supports the Elliott wave count that sees this as part of a B wave. B waves should exhibit weakness.
Stochastics is returning from overbought.
After a break above the purple line (see the weekly chart), it would be typical behaviour of price to turn slowly and retest the line for support then to move up and away.
Bollinger Bands remain very tightly contracted for a reasonable time here. The lower edge may provide some support for price if it moves lower. Look out for volatility to return to the market (it may be explosive) after a long period like this of tight contraction.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. It appears so far that divergence between inverted VIX and price is mostly working to indicate short term movements spanning one or two days. While this seems to be working more often than not, it is not always working. As with everything in technical analysis, there is nothing that is certain. This is an exercise in probability.
Recent short term bullish divergence may have been resolved by one day of upwards movement. Price and inverted VIX both moved lower today, so no new divergence is noted.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
Short term bullish divergence noted two sessions ago was followed by one upwards day, so it may now be resolved.
Price moved lower today but the AD line moved higher. The fall in price today was not matched by a corresponding decline in market breadth. This may be interpreted as single day bullish divergence.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq have made new all time highs in December of 2016. This confirms a bull market continues.
This analysis is published @ 07:55 p.m. EST.
Updated main hourly chart:
This may have to become an alternate. I’ll make that judgement after the session is closed and I have data for what’s happened.
Minor B is a zigzag, it may be complete or it may move higher. It’s still within normal range for B waves within flat corrections.
The most common type of flat is an expanded flat where B does make a new price extreme beyond A. They almost always are confounding, convincing traders this is the new direction, right before the C wave reverses it and more. So we need to remain aware of this possibility.
If today’s upwards movement looks like a false breakout (very light volume, divergence and weakness) then this would be the wave count for that idea.
This is possible.
If entering long here then stops may be set either as money management stops or just below 2,257.02. But that point is fairly far away now, that may be too far.
Invest no more than 1-5% of equity, and ALWAYS use a stop. Always. If it’s mental then stick to it.
Alternate updated:
I may have to switch this over to the main count. Will see how that one can fit next.
This doesn’t have the best look; minor 4 at 12 sessions is much longer in duration than minor 2 at 4 sessions. But that’s not too great a difference, this certainly is valid.
Minor 3 is shorter than minor 1, so minor 5 is limited to 2,323.71.
Hourly chart for this idea:
Minute ii is a zigzag, minuette (b) within it is a running contracting triangle.
Target for minute iii to = i
Just thinking out loud here- is there a viable count that sees intermediate four ending yesterday for the second alternate?
Yes. It may have been a triangle lasting 26 sessions.
The lower A-C trend line doesn’t look perfect, but it’s in the realm of possibility.
I have a better idea after looking at this on the hourly chart. Intermediate (4) may have been a complete combination.
Today may have been an upwards breakout.
Minuette two needs to stay below 2276.96 for that count to remain valid.
Although the move up today not accompanied by strong volume, that has meant little to market price action these days.
So the count over 2278 is well eclipsed. What is the follow on plan? Not surprised. Too many were on the wrong side of this trade, figured there may be a push up to new highs on short covering
It looks like a classic upwards breakout. We’ll have an idea if it’s supported by volume at the end of the session, but as Verne notes that’s not been a useful indicator of late. The market has been drifting higher due to lack of resistance, not necessarily due to increased buying activity.
This looks like what’s happened before. A consolidation, a strong beginning to the upwards breakout, may continue for a few days then enter another consolidation.
Yep! It is indeed a classic thrust from a triangle. This kind of move is also often a final wave up as the triangles often occur in fourth waves. It will be interesting to see what price does in the coming hours
http://www.zerohedge.com/news/2017-01-23/80-central-banks-plan-buy-more-stocks
Forgive the repitition Lara, and I know you consider the central banks part of the herd, but how can they be expected to have the same psychological triggers and patterns as regular investors if they are printing money out of thin air to buy assets? I realize that since the plunge protection team was created in 1987, that the US FED has been buying stocks, but to what end. Also, who the heck is Karoda (Japan) gonna sell to if they already own 2/3rds the market, or is the assumption there is no exit strategy, just infinite printing?
While they’re printing money out of thin air, regular folks are taking on debt (created by banks) to “invest” (actually, they’re gambling, with excessive leverage too).
The banks can only continue to do this while they have the social licence to do it. When the bear arrives it is my theory that this social licence will be removed, as more people become aware that banks create money as debt, out of thin air as you say. When the average folks on the street figure this out they’ll be outraged if they’re bearish, while for now they just shrug it off (or disbelieve it).
When they’re outraged enough then the banks won’t be able to continue doing it, and the market will crash.
That’s just my theory though.
The bankers “investing” with this money are part of the social mood too. They’re still human beings, no matter where the money they get comes from.
That too is just my theory though, and I’m aware it’s very unpopular.
Lara,
I’m just wondering if you think there is any possibility that we are in Primary 4, rather than Intermediate 4. I think this would suggest that your original wave count from several months back was in play, where you had Primary 1 ending where you now have Intermediate 1 of Primary 3 ending. It doesn’t have as good a look, but I was just wondering if it was possible, as Intermediate 4 is starting to drag on a bit.
Thanks,
Peter
Never mind. Looks like we have our answer.
Intermediate (2) lasted 58 days. Intermediate (4) isn’t near that yet, so I wouldn’t say it’s dragging on.