Downwards movement is unfolding as the Elliott wave count and classic technical analysis expected.
Summary: A deeper pullback may have arrived. It may last about one to three months and may end either 2,368 – 2,353 or 2,282 – 2,234. A new low below 2,277.53 would indicate the lower target range should be used.
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
WEEKLY CHART
Click chart to enlarge.
Cycle wave V is an incomplete structure. Within cycle wave V, primary wave 3 may now be complete.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 2 was a flat correction lasting 47 days (not a Fibonacci number). Primary wave 4 may be expected to most likely be a zigzag, but it may also be a triangle if its structure exhibits alternation. If it is a zigzag, it may be more brief than primary wave 2, so a Fibonacci 21 sessions may be the initial expectation. If it is a triangle, then it may be a Fibonacci 34 or 55 sessions.
As price moves lower look for support at each of the longer term trend lines drawn here across previous all time highs. Next support at the cyan line may be met soon.
A new low below 2,277.53 would invalidate the daily alternate wave count below and provide confidence that the pullback is at primary degree.
DAILY CHART
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Intermediate wave (3) is shorter than intermediate wave (1). One of the core Elliott wave rules states a third wave may never be the shortest wave, so this limits intermediate wave (5) to no longer than equality in length with intermediate wave (3). If intermediate wave (5) is now over, then this rule is met.
Minor wave 3 has no Fibonacci ratio to minor wave 1. If minor wave 5 is now over, then it is 4.14 points longer than equality in length with minor wave 3. Price today has closed just below the lower edge of the channel. If price can break below support at the lower edge of this channel, then further confidence in a multi week pullback may be had. I define a breach as a full daily candlestick below and not touching the lower edge of the channel.
Intermediate wave (5) may have ended in 27 days, just one longer than intermediate waves (3) and (4). This gives the wave count good proportions.
The proportion here between intermediate waves (2) and (4) is acceptable. There is alternation. Both are labelled W-X-Y, but double zigzags are quite different structures to double combinations.
The following correction for primary wave 4 should be a multi week pullback, and it may not move into primary wave 1 price territory below 2,111.05.
HOURLY CHART
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The last gap is now closed, so it is correctly named an exhaustion gap.
A new wave down at primary degree should begin with a five down on the hourly and daily chart levels. This is incomplete. During the first five down, no second wave correction may move beyond the start of its first wave above 2,400.98.
There are multiple ways to label downwards movement of the last five days. It is possible that minute wave i is not over and minute wave ii may yet move higher for a deep correction. For this reason the invalidation point is left as it is.
The lower edge of the blue Elliott channel provided some support today as only the last hourly candlestick closed below it. If price breaks below it, then look out for a throw back to find resistance at the lower edge of the channel. If price behaves like that, it would offer a good entry point to join a new short term downwards trend for aggressive traders.
Less aggressive traders may choose to patiently wait for this correction to end before entering long. The larger trend is still upwards and this is expected to be a counter trend movement.
Always remember my two Golden Rules:
1. Always use a stop.
2. Do not invest more than 1-5% of equity on any one trade.
There is more than one way now to label this downwards movement. Minute wave ii may be over as a brief shallow zigzag as labelled, or it may be continuing further as a deeper expanded flat. For this reason the invalidation point is left at the start of minute wave i today.
ALTERNATE DAILY CHART
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What if recent strong upwards movement was the middle a third wave at three degrees? This is supported by a fairly bullish look for the classic technical analysis chart.
All subdivisions are seen in exactly the same way for both daily wave counts, only here the degree of labelling within intermediate wave (3) is moved down one degree.
This alternate also expects a correction, but for minor wave 4, that may not move into minor wave 1 price territory below 2,277.53. A new low below this point would confirm the correction could not be minor wave 4 and that would provide confidence it should be primary wave 4.
Minor wave 4 may last about 26 days if it is even in duration with minor waves 1, 2 and 3. That would give the wave count good proportions and the right look.
Minor wave 4 may end within the price territory of the fourth wave of one lesser degree about 2,368 to 2,353.
Price today closed below the lower edge of the pink channel. This channel still needs to be properly breached for a reasonable level of confidence in this wave count. This wave count would then expect choppy overlapping movement to find support at the wider blue Elliott channel.
Both wave counts expect essentially the same direction next, so the hourly chart for this alternate would look the same with the exception of the degree of labelling.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are now nine green weekly candlesticks in a row. A larger correction may be expected soon.
Volume last week is stronger than the three weeks prior. There was good support last week for upwards movement.
On Balance Volume remains very bullish.
RSI is overbought, but in a bull market this can remain extreme for a reasonable period of time. If it begins to exhibit divergence with price at the weekly chart level, then a larger correction may be expected to begin. There is no divergence at this time.
This trend is not yet extreme.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Three days now of downwards movement show some increase in volume to support the fall in price. This in conjunction with On Balance Volume giving a weak bearish signal supports the Elliott wave count.
It looks like price is finding support today about the 13 day moving average. If price breaks below this average, then look for next support about the 55 day moving average.
A pullback is a reasonable expectation here because ADX was very extreme. The pullback should bring ADX back down below both directional lines, RSI may reach oversold, and Stochastics should reach oversold. There is room now for this pullback to continue further.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.
Bearish divergence and bullish divergence spanning a few short days used to be a fairly reliable indicator of the next one or two days direction for price; normally, bearish divergence would be followed by one or two days of downwards movement and vice versa for bullish divergence.
However, what once worked does not necessarily have to continue to work. Markets and market conditions change. We have to be flexible and change with them.
Recent unusual, and sometimes very strong, single day divergence between price and inverted VIX is noted with arrows on the price chart. Members can see that this is not proving useful in predicting the next direction for price.
Divergence will be continued to be noted, particularly when it is strong, but at this time it will be given little weight in this analysis. If it proves to again begin to work fairly consistently, then it will again be given weight.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
The rise in price has support from a rise in market breadth. Lowry’s OCO AD line also shows new highs along with price. Normally, before the end of a bull market the OCO AD line and the regular AD line should show divergence with price for about 4-6 months. With no divergence, this market has support from breadth.
Short term bullish divergence noted in prior recent analysis has not been followed by upwards movement. There is still mid term bullish divergence between price and the AD line. Today the AD line made a new low beyond the prior low of the 17th of February, but price has not made a new low. This indicates weakness in price.
This divergence does not support the idea of a pullback right here and now. However, more weight will be given to the main technical analysis chart, which shows overbought and extreme conditions.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq continue to make new all time highs. This confirms a bull market continues.
This analysis is published @ 09:23 p.m. EST.
On the hourly chart at least the blue Elliott channel is now breached. I now have some confidence in this pullback continuing for at least another 2 weeks, and fairly likely longer. Now that support is giving way at the lower edge of the channel we may see an increase in downwards momentum.
I still don’t like the hesitancy, the choppy overlapping nature here. It indicates overlapping first and second waves, so look out for a possible strong move downwards either end of this session or maybe tomorrow.
Low volume continues to imply primarily an inertial decline. Will sellers come out of the woodwork? I doubt it. I bet we continue to see a slow drift lower….
It is not too often that you get a clear advantage over the trading bots. One such occasion is when they mindlessly continue to buy dips like monkeys at the onset of a trend change from up to down.
Have a great evening everyone!
I am wondering if it is possible we may completed an impulse down today. We have had a good move off the bottom and a nice hammer on the five minute chart.
If we get a second wave bounce tomorrow, it should show up as a three wave structure and once again probably last all day to draw in a few more eager beavers. I am actually hoping we get a final move down at the open before we bounce as I still have an SVXY contract expiring tomorrow I forgot I was holding as an canary…. 🙂
Yes, it’s possible. That’s how I’m going to chart it today.
I think we may see a slow curve up to test resistance at the lower edge of the blue channel. If it does that, I’ll enter short there.
As my trading guru Bryan Bottarelli would say- “Lock and Load!”
Maybe so, Verne. My STB triggered this afternoon, getting me into SPXU mid-way through the swift leg down. My trade was up nicely for a while when, out of nowhere, came that equally swift reversal. I’m now under water, preparing to get clobbered hard by a morning gap up. I, too, would love to see a move down in the AM, but with the jobs report due out before the market open, I’m not optimistic this evening. Dang me!
Don’t feel too badly. I took quite a bit of clobbering before I figured out to get the sweet spot of impulses down if you are making short term trades you have to get in and get the heck out intraday. If you are not trading options expiring tomorrow I would not loose any sleep. We’re just getting started…
Rolling SPY 237 strike puts expiring tomorrow into 235.50 strike puts expiring next week March 15. Selling for 1.10 per contract. Buying 235.50 strike puts for 0.83 per contract.
If you grabbed any of those puts for 0.50 or 0.60, feel no obligation to roll the trade. It is perfectly acceptable to go out and buy yourself a nice steak! 🙂
Adding another 20 contracts at 0.60…
nice trade!
😉
Speculative trade on SPY 237 strike puts expiring tomorrow at 0.50 per contract. Small position of 5 contracts with profit target of 100 %. 🙂
Interesting! Something I have not seen in a while- gaps down in futures trading on the one minute chart….action still timid.
DJI has yet to close its gap from last Tuesday at 20812.24 and should do so today. It is quite revealing that in the face of what is very likely a trend change at primary degree, futures have hardly budged. I am not sure if that is due to ongoing extreme bullishness of the crowd, or simply a morbid fear on the part of short sellers of the banksters. It is easy to understand why market participants would be now convinced that the rules of the game have changed and that the banksters will without fail successfully arrest every decline so nobody in their right mind would try to short this market. I have to confess that I on occasion have found myself wondering if we were in a new era where one could no longer rely on price faithfully reverting to the mean. I think both the realities of extreme bullishness and the fear of shorting the market apply, They are after all just two sides of the same coin. While some argue that this kind of sentiment argues for a continued bull run in this market, I am thinking it could mean the exact opposite in the intermediate term, and we are going to see a good sized retreat. The market is now falling under its own weight in the absence of any confident selling whatsoever. It will be interesting to see what happens when sellers do show up.
I agree with you that this sentiment is actually very bearish. A contrarian approach.
At major market peaks there should be almost unanimous agreement that the bull market is here to stay, fundamental market behaviour has changed, this time is different. Those who warn of a crash should be greeted with the utmost derision. I’ll be coming across that when I see the structure of Super Cycle (V) complete 🙁
We’re seeing some of this already.
Remember, this could be an upcoming trend change at Grand Super Cycle degree. That’s a once in multigenerational trend change. Something no one alive today has seen. So the market conditions should be highly unusual, very extreme.
We’re moving now into rather uncharted territory now Verne. It’s going to be…. interesting.
In fact, I have started to realise that part of my own befuddlement could well be symptomatic of the size of, and kind of top we are seeing. It makes perfect sense that since none of us have lived through a topping process this significant, we would be seeing and experiencing things none of us have seen before. If I am not mistaken, I did see a post recently that called for a straight march to DJI 40.000.00! 🙂
That purple line on Lara’s chart is probably the most powerful piece of information available to us and I will be watching it with keen interest. I went back and took a close look at primary two and the entire thing was done in less than a month as a regular flat. If we get a Zig Zag for P4 I think it could unfold even more quickly and in fact I expect it to because of the extreme level of bullishness we saw in this last leg up, even though it is a bit slow it getting started to the downside. The gaps are also important. The persistently low volume we have been seeing makes me suspicious that at least a few of them came on some serious leveraged buying. The slow way they are being closed is suggesting that somebody is being REAL careful about unwinding long positions. If we see the numerous gaps on the way up being closed violently that could hint of leveraged positions being unwound. You really don’t want to be in BTFD mode when and if that happens. Let’s go get some bankster scalps Kemosabe! 🙂
I have P2 lasting 47 days, so over a month.
Oops! Not wearing contacts! 🙂
at least Im not turd again
Doc, you’ve lost your mojo! C’mon man!
Oops, does this make me turd? I really stepped in it!
Better than you-know-what hitting the proverbial fan! 😉
Foist! 🙂