Price is range bound. A small red doji does not change the Elliott wave count.
Summary: This small consolidation may present an opportunity to join the upwards trend. Stops may be set just below the last gap, which has its low at 2,356.18. The target is at 2,469.
A new low below 2,344.51 would be bearish; if that happens, expect price to continue lower to 2,319.
Always remember my two Golden Rules for trading:
1. Always use a stop.
2. Invest only 1-5% of equity on any one trade.
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.
This wave count sees the middle of primary wave 3 a stretched out extension, which is the most typical scenario for this market.
Primary wave 3 may be incomplete. A target is now calculated for it on the daily chart.
There is alternation within primary wave 3 impulse, between the double zigzag of intermediate wave (2) and the possible triangle or combination of intermediate wave (4).
When primary wave 3 is a complete impulse, then a large correction would be expected for primary wave 4. This may be shallow.
Thereafter, primary wave 5 may be expected to be relatively short, ending about the final target at 2,500.
DAILY CHART
Click chart to enlarge.
Primary wave (4) may be a complete regular contracting triangle. It may have come to a surprisingly swift end with a very brief E wave.
There is already a Fibonacci ratio between intermediate waves (3) and (1). This makes it a little less likely that intermediate wave (5) will exhibit a Fibonacci ratio to either of intermediate waves (1) or (3); the S&P often exhibits a Fibonacci ratio between two of its three actionary waves but does not between all three.
Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,344.51.
HOURLY CHART
Click chart to enlarge.
The triangle may have come to a surprisingly quick end. Triangles normally take their time, so this quick end does slightly reduce the probability of this first wave count. A rare running flat within minor wave D of the triangle (now off to the left of this chart) also slightly reduces the probability. For these reasons an alternate is provided below.
If the triangle is over, then the next wave up has begun. A five up may be complete. A three down for minor wave 2 may have continued mostly sideways during Friday’s session.
If the last gap is correctly named as a measuring gap, then it may not be filled; the lower edge may provide support. If this is the case, then minor wave 2 may be a relatively shallow correction, which may now be over. Within a new trend for this market, the early second wave corrections are often surprisingly brief and shallow.
If price closes the gap, then use the 0.618 Fibonacci ratio as the next target for minor wave 2.
Minor wave 2 may not move beyond the start of minor wave 1 below 2,344.51.
If price does make a new low below 2,344.51, then the alternate below shall be used.
ALTERNATE DAILY CHART
Click chart to enlarge.
What if intermediate wave (4) was not a complete triangle but is still unfolding as a double combination?
Double combinations are very common structures. This would still provide perfect alternation in structure with the double zigzag of intermediate wave (2). Although double zigzags and double combinations are both labelled W-X-Y, they are very different structures and belong to different groups of corrections.
The purpose of combinations is the same as triangles, to take up time and move price sideways. Intermediate wave (2) lasted 58 days. So far intermediate wave (4) has lasted 42 days. If it continues for another two or three weeks, it would still have excellent proportion with intermediate wave (2).
Although this wave count actually has a better look than the main wave count, it does not have support from classic technical analysis. For this reason it will be published as an alternate with a lower probability.
ALTERNATE HOURLY CHART
Click chart to enlarge.
The problem of the running flat within the main wave count is here resolved.
The second structure of the combination may be an expanded flat labelled minor wave Y. There is no rule regarding the maximum length of B waves within flats, but there is an Elliott wave convention that states when the potential B wave reaches twice the length of the A wave the idea of a flat should be discarded based upon a very low probability. That price point would be at 2,427.77.
The most common Fibonacci ratio is used to calculate a target for minute wave c. If minute wave b moves higher, then this target must be moved correspondingly higher.
A best fit channel is used to contain minute wave b. If this channel is breached by downwards movement, it would be indicating that minute wave b is over and minute wave c is then underway. At the end of Monday’s session price is starting to break below the channel, but this is not with convincing downwards movement. Price is just drifting sideways.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
This chart is bullish and strongly supports the main wave count. However, it is concerning that ADX is extreme. This does not mean price must turn down here; it only puts some doubt on how much further price can go up.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
So far the last gap labelled a measuring gap is holding support. Assume this gap is a measuring gap while it remains open, until proven otherwise.
The target remains the same.
On Balance Volume trend lines are redrawn now that it has some sideways movement to create a new range. A breakout may precede the next direction for price.
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.
It is noted that there are now six multi day instances of bullish divergence between price and inverted VIX, and all have been followed so far by at least one upwards day if not more. This signal seems to again be working more often than not. It will again be given some weight in analysis.
There is new single day divergence between price and VIX, which is bearish. However, single day divergence has lately proven to be unreliable. It will be given no weight in this analysis today.
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 measures of market breadth do not at this stage warn of an impending end to this bull market. They show an internally healthy bull market that should continue for at least 4-6 months.
No new divergence is noted today between price and the AD line. There is still longer term bearish divergence, but this has not proven reliable lately, so it will not be considered.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq continue to make new all time highs. This confirms a bull market continues.
The following lows need to be exceeded for Dow Theory to confirm the end of the bull market and a change to a bear market:
DJIA: 17,883.56.
DJT: 7,029.41.
S&P500: 2,083.79.
Nasdaq: 5,034.41.
Charts showing each prior major swing low used for Dow Theory are here.
This analysis is published @ 11:33 p.m. EST.
It’s as deadly quiet in here as this market today.
Main hourly chart updated:
The sideways movement could also be overlapping first and second waves. The subdivisions on the five minute chart aren’t as good though, this idea looks forced.
Alternate hourly chart updated:
It sure does look like a triangle is forming. If I’ve got the triangle labelled right then the entry direction was up, so it should exit up.
A triangle doesn’t fit the main wave count because second waves don’t subdivide as triangles.
These market makers can be so annoying. You would think that with a better than 4% pop in the VIX since I bought those 11.50 calls you would see some movement in the bid on those contracts, yet they stubbornly remain just at about the bid when I bought them, a measly 0.80 There oughta be a law! 🙂
OK. I got our for a tiny 0.87 per contract; Ask was 0.90…. hardly worth the effort! 🙂 Oh Well…
Since I learned from a certified expert here at EWSM, I mentioned on a blog I visited that a possible b wave could make a new high and the correction not be done, with a C wave to come. Everyone insisted in no uncertain terms that a new high meant a fifth wave was already underway. Reminds me of my days with the “Other Guys” 😉
The move up out of the structure you drew would make the last move from what we thought was a short E look like a piker, and be a beautiful bull trap…he! he! Tricksy Mr. Market!
Oh dear. Sounds like a lack of understanding about B waves there.
Expanded flats and running triangles are pretty stock standard Elliott wave structures.
It never fails to amaze me, the lack of understanding out there on the interwebz of Elliott wave. The amount of complete rubbish published…
I even had one chap recently argue with me that he was right and I was wrong. Even though he was breaking an EW rule. That did amuse me actually.
Any new members here who come across other EW stuff, if you’re unsure if it’s any good then ask. I’ll give you a clear answer.
Thanks for that update Lara. You probably saved me a bit of angst tomorrow if we get a moon-shot out of that possible triangle as I was definitely expecting a C wave down. I made a few defensive moves, ( just in case) and converted some positions to credit spreads. A move like that would fit this market to a T. Besides, we actually have been in what is clearly a consolidation mode the last few days. 😀
Yeeep… Watsup Doc?! 🙂
may day,, may day