An inside day remains above the invalidation point on the hourly Elliott wave chart.
Summary: Classic technical analysis remains very bullish for the mid term. The next target is now at 2,526 to 2,533. It may be met in another 5 sessions.
In the short term, price is falling after hours; a decline in market breadth today indicates downwards movement may not be over, but volume suggests the downside is limited.
Stay nimble and keep stops tight. This trend is extreme and over stretched. There is reasonable downside risk.
Always trade with stops and invest only 1-5% of equity on any one trade.
Last monthly and weekly charts are here. Last historic analysis video is here.
Due to strong support for a bullish wave count from On Balance Volume and the AD line, the wave counts are now labeled “main” and “alternate” and have been swapped over.
MAIN ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This wave count has strong support from a clear and strong bullish signal from On Balance Volume. While classic analysis is still very bullish for the short term, there will be corrections along the way up. Indicators are extreme and there is considerable risk to the downside still.
If primary wave 3 isn’t over, then how would the subdivisions fit? Would it fit with MACD? What would be the invalidation point and would the Fibonacci ratios be adequate?
Of several ideas I have tried, this one has the best fit in terms of subdivisions and meets all Elliott wave rules.
Despite this wave count appearing forced and manufactured, and despite persistent weakness in volume and momentum for this third wave, On Balance Volume does now strongly favour it. It may be that as a Grand Super Cycle wave comes to an end, that weakness may develop and persist for very long periods of time (up to three years is warned as possible by Lowry’s for the end of a bull market), so this weakness may be viewed in that larger context.
Within minute wave v, no second wave correction may move beyond the start of its first wave below 2,417.35.
The next reasonable correction should be for intermediate wave (4). When it arrives, it should last over two months in duration, and it may find support about the lower edge of this best fit channel. The correction may be relatively shallow, a choppy overlapping consolidation, at the weekly chart level.
DAILY CHART
Click chart to enlarge.
To see details of the whole of primary wave 3 so far and compare and contrast with the alternate wave count, see the analysis here.
Minute wave v to complete minor wave 3 must subdivide as a five wave structure. It looks like an incomplete impulse. Within the impulse, subminuette wave iv may not move into subminuette wave i price territory below 2,480.38.
So far minuette wave (iii) has lasted 16 sessions. If it exhibits a Fibonacci duration, then the next number in the sequence is 21; this duration would see it end in another 5 sessions.
HOURLY CHART
Click chart to enlarge.
At the hourly chart level, this wave count now still has a better look over the alternate wave count. Subminuette wave iii looks so far like a typical unfolding impulse and its second and fourth wave corrections for micro waves 2 and 4 both look to be in proportion.
Subminuette wave iv may be continuing as a regular contracting triangle. However, if after market price movement is to be considered, then subminuette wave iv may turn out to be a flat or combination. All of these structural options would provide good alternation with the zigzag of subminuette wave ii.
Subminuette wave iv now shows on the daily chart as one red candlestick. If it continues for one more session, it would still have good proportion with subminuette wave ii.
If subminuette wave iv moves lower, then it may end within the fourth wave of one lesser degree price territory. Micro wave 4 has its price territory from 2,498.43 to 2,491.36. However, it may not get this low because there is now strong support about 2,500.
Subminuette wave iv may not move into subminuette wave i price territory below 2,480.38.
If subminuette wave iv does move lower, then the upper edge of the target zone for minuette wave (iii) must be recalculated.
ALTERNATE WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Primary wave 3 may be complete. Confidence may be had if price makes a new low below 2,480.38 now. That would invalidate the main wave count. Fibonacci ratios are calculated at primary and intermediate degree. If primary wave 3 is complete, then it still exhibits the most common Fibonacci ratio to primary wave 1.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 4 should last about 8 weeks minimum for it to have reasonable proportion with primary wave 2. It is the proportion between corrective waves which give a wave count the right look. Primary wave 4 may last 13 or even 21 weeks if it is a triangle or combination. So far it may have completed its fifth week.
If primary wave 4 unfolds as a single or double zigzag, then it may find support about the lower edge of the maroon Elliott channel. If it is a triangle or combination, it may be more shallow, ending about mid way within the channel. At this stage, a single zigzag has been invalidated and a double zigzag is discarded based upon a very low probability. It looks like primary wave 4 is to be a very shallow sideways consolidation rather than a deeper pullback.
Only two daily charts are now published for primary wave 4: a triangle and a combination. It is impossible still for me to tell you with any confidence which of these two structures it may be. The labelling within each idea may still change as the structure unfolds.
The daily charts are presented below in order of probability based upon my judgement.
The final target for Grand Super Cycle wave I to end is at 2,926 where cycle wave V would reach 1.618 the length of cycle wave I.
DAILY CHART – TRIANGLE
Click chart to enlarge.
This first daily chart will illustrate how price might move if primary wave 4 unfolds as a triangle.
Intermediate wave (B) may be a double zigzag. One of the five sub-waves of a triangle should be a more complicated multiple; most commonly that is wave C, but it may be any sub-wave. Intermediate wave (B) has made a new all time high, so it may be a running triangle.
The triangle may last a total of a Fibonacci 13 or 21 weeks.
Both intermediate waves (A) and (B) look like three wave structures.
Intermediate wave (C) may not move beyond the end of intermediate wave (A).
HOURLY CHART
Click chart to enlarge.
A double zigzag may be again complete for intermediate wave (B).
Use the black best fit channel. If price breaks below the lower edge, then expect the upwards swing is over and the next swing down has begun. While price remains within this channel, then it is entirely possible price may continue higher; minute wave c may not be complete.
There is still zero evidence of a trend change. A new low below 2,480.38 is required for any confidence that a high is in place.
We should assume that the trend remains up while price remains within the black channel and above 2,480.38.
DAILY CHART – COMBINATION
Click chart to enlarge.
A combination for primary wave 4 would still offer some alternation with the regular flat of primary wave 2. Whenever a triangle is considered, always consider a combination alongside it. Very often what looks like a triangle may be unfolding or may even look complete, only for the correction to morph into a combination.
There may only be one zigzag within W, Y and Z of a combination (otherwise the structure is a double or triple zigzag, which is very different and is now discarded). At this stage, that would be intermediate wave (W), which is complete.
Combinations are big sideways movements. To achieve a sideways look their X waves are usually deep (and often also time consuming) and the Y wave ends close to the same level as wave W.
This wave count sees upwards movement continuing as intermediate wave (X). Unfortunately, there is no Elliott wave rule regarding the length of X waves, so they may make new price extremes. I am applying the convention within Elliott wave regarding B waves within flats here to this X wave within a combination: When it reaches more than twice the length of intermediate wave (W), then the idea of a combination continuing should be discarded based upon a very low probability.
With intermediate wave (W) a zigzag, intermediate wave (Y) would most likely be a flat correction but may also be a triangle. Because a triangle for intermediate wave (Y) would essentially be the same wave count as the triangle for the whole of primary wave 4, only a flat correction will be considered.
But first, an indication would be needed that the upwards wave of intermediate wave (X) is over. As yet there is no evidence of this.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A strong weekly candlestick gaps higher and has support from volume. This looks like a classic upwards breakout after a small consolidation, and there may have been a small flag pattern in it. This supports the second Elliott wave count.
If the flag pole is taken from 2,405.70 to 2,490.87, then a target for the next wave up may be about 2,527.
On Balance Volume looks like it may be breaking above the resistance line. However, the break is very small and so is unclear. One more upwards week would make it much clearer and then confidence may be had in the signal.
ADX is extreme and RSI now exhibits double bearish divergence. This trend is very extreme; beware that the first wave count may still be correct.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The Hanging Man pattern now has bearish confirmation. It may be a reversal signal. This favours the second wave count.
The market fell of its own weight today. Volume does not support the fall in price. Volume remains bullish. On Balance Volume remains bullish. RSI is still not overbought. There is room still for price to rise.
Look for strong support now about 2,500.
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.
There is still mid and longer term bearish divergence, but it has been noted in the past that divergence over a longer term does not seem to work as well for VIX. Short term bearish divergence has disappeared.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
With the last all time high for price, the AD line also made a new all time high. Up to the last high for price there was support from rising market breadth.
There is normally 4-6 months divergence between price and market breadth prior to a full fledged bear market. This has been so for all major bear markets within the last 90 odd years. With no divergence yet at this point, any decline in price should be expected to be a pullback within an ongoing bull market and not necessarily the start of a bear market.
There is again no new divergence today between price and the AD line. The new high today for price has support from rising market breadth. This is bullish.
The fall in price during the session today was accompanied by a normal decline in market breadth. Because the fall in price is supported by market breadth it may indicate further downwards movement here.
DOW THEORY
The S&P’s new all time high last week is confirmed by DJIA and Nasdaq also making new all time highs. However, DJT has not yet made a new all time high, so the continuation of the bull market at this stage lacks confirmation.
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.
Published @ 11:38 p.m. EST.
End of session chart update:
Perfect alteration still, good proportion still. Another consolidation / pullback may be done now, on the way up to new highs.
Next smaller correction will be minuette (iv).
Target recalculated at two degrees now a 3 point zone.
Even though subminuette iv is twice the duration of subminuette ii, at the daily chart level they have a good look and combinations are more time consuming than zigzags so this is entirely acceptable.
These hammers have been of late very reliable bullish signals. Adding a nice contingent of SPY 248 calls expiring next week at the close.
Have a great weekend everybody!
DJT in the green today and within striking distance of new ATH and DOW theory confirmation. Will the seasonal bearishness of September also (as was sell in May…) be negated by the unbridled bullishness of the herd?! 🙂
it can in a leading diagonal
when labelling a movement as a diagonal it’s EW convention to put the diagonal trend lines in, that indicates a diagonal
and lets everyone else know your intention with the count
It is starting to look like the meandering will continue until next week. I will be looking for a sharp wave up on Monday and an outside reversal day. Yen will also probably make a final low then. The banksters are running out of ammo….
The last rounding top a few weeks back too about 8-9 trading days to complete (to initiate sharp downward movement). If this plays out similarly, then yes, several more days of sideways churn, then a break down. Looking at the daily, you don’t even have to be a bear to see that a downward swing is due!! Time to come off upper bollinger and keltner bands etc. Maybe (???) even time to do that C wave of the P4 triangle…!!!! Anything’s possible, but some things are a bit more likely than others.
could be in a wave 2 correction here
Nick, Wave (iv) cannot overlap wave (i)
Joseph, your comments below at 10:54 am very interesting, would you summarize what this means for SPX and VIX ?
What drives any market? Liquidity!
What is the Fed in effect doing by reducing the balance sheet? Pulling Liquidity.
What has driven the market higher since the last two EW count possible top’s in 2012 and May/June 2015?
Fed Liquidity
Both those EW Tops Failed… due to a ton of Fed Liquidity. Both of those were Prechter called Tops and he was out pounding the table for both. Both started out looking like they would be confirmed but failed at critical points.
Yep. The points of extraordinary CB intervention it seems to me were quite obvious. I am afraid with the attitude of the cartel that they will not allow even the mildest correction, the first serious decline in the market is going to be a huge clue that the pumpers are loosing control. So far they are dong an admirable job of arresting the market’s attempt to correct. I still am of the opinion that we may not see one apart from an exogenous shock of some kind….
You will after October 1st… when the Liquidity drain opens.
Who is to say that these continuation EW Counts will prove out??? Lurking is that EW Count that has yet come to light!
You have the exact opposite effect after October 1st of that which occurred at the two previous EW Tops {2012 and May/June 2015} which both failed at confirmations door. When new EW counts came to light.
This article makes my case for me… It asks where will the savings come from to absorb the reduction in the Fed Balance sheet + increased US Govt Deficits???
I have a different conclusion than this article. I say the Funds will come out of the stock markets because during QE the stock market is where all the excess funds went to… which caused the failure of the previous two major EW Count Tops!
What the idiot who wrote this article doesn’t say is that equity markets are not part the “Savings” formula of the data he is using.
But he is a useful idiot because it just proves that the only place funds can come from are the equity markets!
Here is the article… http://www.zerohedge.com/news/2017-09-22/impossible-math-federal-reserve
Almost a perfect doji for the weekly chart.
Open… 2502.51
Close… 2502.22
Good observation Joe. Even if we get an initial ramp to start next week that weekly candle could be sending an impotant message…
An awful lot of capital was expended defending the 2500 pivot. I imagine the expectation is to continue to ramp price higher from here after a period of consolidation. I would be very concerned for the bearish case if this pivot holds through next week and will be exiting my mid term short trades if it does. A move thorough September with both the 2470 and newly achieved 2500 pivots intact would spell, in my mind, real trouble for the prospect of any near term serious market correction.
A Close next Friday at 2474.42 would make a perfect Doji on the Monthly Chart. Certainly possible if volume levels are similar to this week.
It would fit beautifully with the Oct 1st start of the Fed Balance Sheet reduction plan.
Much of the market’s elevated valuation is owing to wide-spread share buy-backs which in turn were financed with corporate bond issues. While it is true that the FED does not (we hope!) own any of this float, their balance sheet will unquestionably be affected by the fate of these bonds. A slowing economy will affect earning’s growth/decline which in turn will affect share price and of course the ability to service the debt used to finance share buy-backs. Corporate bond failure is where the trouble with rates will begin, and not with any move by the FED to aggressively hike the benchmark, in my opinion.
Alot of “interesting” levels approaching! RUT less than a point from a major double top. SPX very close to the (alternative/bearish) lower channel line. And INDU very close to breaking the (significant?) low from two days ago (doesn’t sound like much but for INDU, that’s a bear market!!!!). Today could just go sideways but I’m watching closely because I think a sell-off fuse just might be burning away here. I already have a pilot short in SPX very slightly in the green, and will add a short INDU position via DOG if the low from 2 days ago is cracked.
Turned around to the long side at this point, looking for runners in one or all of KBH, FB, VEEV, and TSLA. Oh, and SPX via UPRO. Don’t want to be in any of these come the close/early next week, but meanwhile, chasing the cash available thanks to the BTFD crowd.
Verne,
can you explain what a cash dump is. Is it bankers throwing money at the market in an effort to prop it up?
Thanks Nick. Pretty much same question as mine below.
Pretty much. It generally happens after a sharp impulse down and the giveaway is monstrous successive green candles upward against the down-trend…
So mainly by inference from price action then, right? And what time scale do you watch most closely?
Both 5 and 1 minute charts along with money flow, volume, and momentum oscillators….
Thank you Verne. I appreciate your insights here!
🙂
To piggy back on what Verne was illuminating on; the participant dealer banks who receive printed FED dollars use their marketing making desks to position short the indexes (see CFTC commitment of traders report/Commercial Net Exposure)
they then use the printed dollars to cover strategically. This is the main reason we are seeing ubiquitous/unprecedented chop/gap/overlap in the action. To make it all the more ridiculous, the buys among member banks and central banks are typically coordinated; see Nikkei two days ago and DAX today.
Can’t disagree. CBs help stabilize currencies and markets, but they also cause mischief by distorting some market realities. Still, they can’t nullify the EW principle. Best to simply trade price action as we see it.
Here, here!!! Prognostication is fun. However, price action speaks. Why it goes up or down, and whether it “should” or “shouldn’t” is immaterial (and IMO, 99.9% unknowable as well). I’ve learned that lesson the last 6 weeks, missing too many powerful upmoves because I relied on perceptual filters and ignored price action.
Verne’s explanation will be better…but for me, a cash dump is when my execution is really crappy, and cash comes out anyway!! Like this morning, putting a limit buy on TSLA “well below” the market as I waited for the setup. Suddenly, “bgt TSLA” shows up on my screen!!! Ooops!!! By time I can do something about it, I’m in the green, and 10 minutes later…cash dump!!! Lol!!! I’d rather be good than lucky but lacking the former….
My outlook has decidely swung to the bearish side: this action has moved from “consolidation” to “topping action” in my book. And instantly, this inability of SPX to close the oepning gap is veeeery suspicious. Could close in a minute but it’s stalled and….hmmm. I can also count the start of a 5 wave impulse down over the last 2+ days.
This???
4 hour MACD on SPX has a bearish cross over. Daily looks like it will follow especially if today is a down day. Normally this leads to a couple of weeks in the new direction. This supports the now alternate count. It looks like I may have been ‘lucky’ again to get rid of my long positions at 2502 just before the 2509 top.
Have a great weekend all. I’m off to the mountains I love so much. See you in a week or so. Blessings.
Have a great time of refreshment and relaxation my friend.
I am looking with some sadness at some serious devastation on my home island of Tortola. The satellite before and after images are truly stunning. The former lush emerald green, the latter a brown barren wasteland…enjoy the mountains, and wish I could accompany you! 🙂
Wow! I have never seen cash dumps like we are seeing this morning!
What the….????!!! 🙂
BTW this fight was going on in the futures market not the cash session…
Verne, to help me understand better… What do you mean by “cash dumps?” And how are you seeing them? TIA.
Something a bit ominous is also starting to show up in the smash volatility, ramp equities pairs trade. One does not expect BOTH volatility AND equities to tank. It looks as if they have squeezed all the juice they can out of that particular lemon. New market highs also has not resulted in a new VIX low- bearish divergence.
Let’s see if they can still fund equities by shorting the Yen. If the latter starts to go North, that could spell trouble…
China has agreed to cut off the DPRK from their banking system. This is a monumental development. Considering China has taken this step ahead of a US compliance with their demand for removal of the THAAD system from South Korea, it reveals that China does not think it is quite ready to go head to head with Uncle Sam. Their exclusion from the SWIFT system would cripple their economy. More importantly, this is going to be a disaster for “Rocket Man”.
His fragile economy cannot withstand a world wide US sanction against nations doing business with him, and on that score since China has thrown in the towel, so will everyone else. Without imports of fuel as Winter approaches, and food, the situation in NK is going to very quickly become extremely dire. Mr Kim is about to learn that he has severely over-played his hand. If he cannot feed and pay his generals and his army, he will face a revolt. The question is, how will he respond?
Will he acknowledge his loosing hand, or will he double down and take the course the Japanese did that caused us to enter WWII? I am betting he is going to do something really stupid….he just seems to be that kinda guy…..
in addition to the afore-mentioned geo-political risks, world wide cataclysms seem to be exploding – hurricanes, earthquakes, raging fires, radio active contamination on a massive scale….and VIX is trading below 10.00!!! What am I missing??!! 🙂
These are anomalous circumstances in the extreme….!
Yeeeuuup. Buying me some VXX right out of the gate this morning. Gotta be good soon!!
Not sure what else the VIX is missing, But…
It is missing that starting in 6 trading days, the markets liquidity will be drawn down by $10 Billion/mo increasing $10 Billion/Qtr. to a Max per month of $50 Billion. The Fed Balance Sheet will be Reduced Starting October 1st using a natural run off of MBS Securities and Bills, Notes and Bonds (maturing).
That is in effect a reduction of buying power away from equities into US Treasury Securities just as the US Government’s financing needs increases naturally due to the increase cost to the US Treasury of rising interest rates in the 1 month to 5 year maturities that will increase the need to find buyers for not only additional issuance but replacement of what needs to be rolled over. + add to that the hurricane expenditures that are necessary due for Texas, Florida, Puerto Rico and other US Islands effected. All taken together will be a huge additional expense over the next 12 months to 3 years.
This all is a “Double Impact to liquidity” and is what most don’t understand or choose to ignore.
The Yield Curve Flattening will accelerate starting in October and that will accelerate what I describe above exponentially over time, the problem gets larger and larger just like a snowball growing in size going down a mountain!
The Current Fed won’t do anything at all about this… because buy the time it shows up in economic numbers… well they will all be out of their jobs.
They will not react to the markets unless its a 50%+ crash over a few months. The Fed historically never follows the markets. Only the wosses in power the last 8 year functioned that way. The new people coming in will NOT!
Yield curve already flat. An inversion is game over.
Sometimes we forget that the FED is in business to make money. Rising rates would be disastrous for their bond portfolio. It is really a rock and a hard place for them. Selling their portfolio is going to cripple equities because of the tightening monetary effect. Holding onto it means certain insolvency in a rising rate environment.
Come on Verne, its not flat yet….
Interest Rates as of 9-21-2017:
The Yield Curve will continue to Flatten
over time IMO.
0.99% – 1 month US Treasury Bill
1.04% – 3 month US Treasury Bill
1.19% – 6 month US Treasury Bill
1.31% – 1 Year US Treasury
1.45% – 2 Year US Treasury
1.59% – 3 Year US Treasury
1.89% – 5 Year US Treasury
2.11% – 7 Year US Treasury
2.27% – 10 Year US Treasury
2.57% – 20 Year US Treasury
2.80% – 30 Year US Treasury
Oops! You are right. I was looking at Chinese rates….
They don’t mark to market or have profits like a company…
They hold to maturity or as in their MBS portfolio it naturally runs off.
There is no reporting pressure to sell. If you hold to maturity there are no realized losses!
looks like we’re going lower
See if we get a 3 down here for the start of subminuette V
Hilarious guys 🙂
So, it’s time to let you all know that I’ll be doing some travelling next week, and this will affect analysis. I will not be able to jump in just prior to the NY close to update hourly charts for you.
I’m flying to Hong Kong next Thursday 28th September (my time, remember, I’m living in the future down here). The flight is a daytime one, they tell me I’ll have internet access in flight so I hope to get work done. But if the connection is horrible then it is just possible that I may not be able to upload charts and publish your analysis that day.
While I’m in Hong Kong for 9 nights the time zone means I’ll not be able to give a quick update before NY close. I’ll be up at 6am HK time (6pm NY time) to begin end of day analysis.
The return flight will not affect your analysis.
Back to normal as of Monday 9th October.
I’ll let you all know in comments on the last “normal” day of analysis.
Thanks for letting us know. Enjoy and be safe. I’m leaving in a couple of hours. I waited an extra day because of heavy rain in the mountains which now have lots of snow in the high passes.
I was busy…!
Oh no!
Not more wabbits?!?!
Awww…come on! Bunnies are just lovable!! 🙂
How’d I get here???
good ,, you beat dat wabbit