Market breadth and volatility are used at the end of this week to indicate the direction for next week. The Elliott wave count continues to have support from rising market breadth in the AD line and declining VIX.
Summary: The first large correction within cycle wave V may have arrived. It may be labelled either intermediate wave (1) or primary wave 1. Classic technical analysis at this stage favours a shallow sideways consolidation; the target would be about 2,550. But it may also be a sharp pullback; the target would be about 2,472.
The bigger picture still expects that a low may now be in place. The target is at 3,045 with a limit at 3,477.39.
New updates to this analysis are in bold.
The biggest picture, Grand Super Cycle analysis, is here.
The monthly chart was last published here.
ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This weekly chart shows all of cycle waves III, IV and V so far.
Cycle wave II fits as a time consuming double combination: flat – X – zigzag. Combinations tend to be more time consuming corrective structures than zigzags. Cycle wave IV has completed as a multiple zigzag that should be expected to be more brief than cycle wave II.
Cycle wave IV may have ended at the lower edge of the Elliott channel.
Within cycle wave V, no second wave correction may move beyond the start of its first wave below 2,346.58.
Although both cycle waves II and IV are labelled W-X-Y, they are different corrective structures. There are two broad groups of Elliott wave corrective structures: the zigzag family, which are sharp corrections, and all the rest, which are sideways corrections. Multiple zigzags belong to the zigzag family and combinations belong to the sideways family. There is perfect alternation between the possible double zigzag of cycle wave IV and the combination of cycle wave II.
Although there is gross disproportion between the duration of cycle waves II and IV, the size of cycle wave IV in terms of price makes these two corrections look like they should be labelled at the same degree. Proportion is a function of either or both of price and time.
Draw the Elliott channel about Super Cycle wave (V) with the first trend line from the end of cycle wave I (at 2,079.46 on the week beginning 30th November 2014) to the high of cycle wave III, then place a parallel copy on the low of cycle wave II. Cycle wave V may find resistance about the upper edge.
DAILY CHART
Click chart to enlarge.
The daily chart will focus on the structure of cycle waves IV and V.
Cycle wave IV now looks like a complete double zigzag. This provides perfect alternation with the combination of cycle wave II. Double zigzags are fairly common corrective structures.
Within Super Cycle wave (V), cycle wave III may not be the shortest actionary wave. Because cycle wave III is shorter than cycle wave I, this limits cycle wave V to no longer than equality in length with cycle wave III at 3,477.39. A target is calculated for cycle wave V to end prior to this point.
Cycle wave V must subdivide as a five wave motive structure, either an impulse or an ending diagonal. An impulse is much more common and that will be how it is labelled. A diagonal would be considered if overlapping suggests it.
Within the five wave structure for cycle wave V, primary wave 1 may be incomplete. Within primary wave 1, intermediate wave (1) may now be complete. The degree of labelling within cycle wave V may need to be adjusted as it unfolds further. At this stage, an adjustment may be to move the degree of labelling within cycle wave V up one degree; it is possible that it could be primary wave 1 now complete.
Within cycle wave V, no second wave correction may move beyond the start of its first wave below 2,346.58.
Intermediate wave (2) now looks like it may unfold as a sideways correction. It may find a low about the 0.382 Fibonacci ratio of intermediate wave (1) at 2,550. It may continue sideways with choppy overlapping movement for another very few weeks.
MAIN HOURLY CHART
Click chart to enlarge.
Intermediate wave (1) may be a complete impulse.
There is perfect alternation between a shallow 0.42 zigzag for minor wave 2 and a much more shallow 0.10 triangle for minor wave 4. Minor wave 2 lasted 27 hours and minor wave 4 lasted 25 hours; their proportion is close to perfect in terms of time.
This wave count agrees with MACD. The strongest momentum is within minor wave 3. Minor wave 5 shows slightly weaker momentum.
This wave count considers a flat correction or combination for intermediate wave (2).
If intermediate wave (2) is unfolding as a flat correction, then within it the first wave of minor wave A may itself be unfolding as a regular flat correction. A target is calculated for minute wave c to end. When minor wave A may be complete then minor wave B must retrace a minimum 0.9 length of minor wave A, and minor wave B may make a new high above the start of minor wave A at 2,675.47 as in an expanded flat.
If intermediate wave (2) is unfolding as a combination, then the first structure within a double may be an unfolding flat correction labelled minor wave W. When minor wave W may be complete, then minor wave X would most likely be a zigzag and may make a new high above the start of minor wave W at 2,675.47. There would be no minimum requirement for minor wave X. Thereafter, minor wave Y may end about the same level as minor wave W.
Both a flat or combination allows for a new high above 2,675.47 as part of intermediate wave (2). There is no upper invalidation point for this reason. Both of minor waves B or X within a flat or combination should exhibit weakness; if a new high is seen, it should come with weak volume and momentum for this wave count.
FIRST ALTERNATE HOURLY CHART
Click chart to enlarge.
This alternate hourly chart considers a zigzag for intermediate wave (2). Minor wave A within a zigzag must subdivide as a five wave structure; minor wave A may be an incomplete impulse. Within minor wave A, minute waves i and ii may be complete. Minute wave iii should now exhibit an increase in downwards momentum.
The most common structure for a second wave correction is a zigzag. This wave count does not have as much support from classic technical analysis at the end of this week; for this reason, it is now judged to have a lower probability and is labelled an alternate.
SECOND ALTERNATE HOURLY CHART
Click chart to enlarge.
It is possible that minor wave 3 was over at the last high. This wave count ignores what looks like a triangle and on higher time frames minor wave 3 looks like a three wave structure.
Minor wave 4 may have ended as a quick shallow zigzag. There is perfect alternation between minor waves 2 and 4.
It is also possible that minor wave 4 may continue sideways next week as a shallow triangle, flat or combination. If minor wave 4 does continue, it may not move into minor wave 1 price territory below 2,520.27.
Within minor wave 5, minute wave ii may not move beyond the start of minute wave i below 2,612.86.
The target expects minor wave 5 to exhibit the most common Fibonacci ratio to minor wave 1.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of et=”_blank”>StockCharts.com.
From the all time high to the low at the end of December 2018, price moved lower by 20.2% of market value meeting the definition for a bear market.
It should be noted that the large fall in price from May 2011 to October 2011 also met this definition of a bear market, yet it was only a very large pullback within a bull market, which so far has lasted almost 10 years.
This weekly candlestick may complete a Hanging Man, which is a bearish reversal pattern, but the bullish implications of the long lower wick on a Hanging Man requires bearish confirmation. A Hanging Man reversal pattern is essentially a two candlestick pattern.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Over a fairly long period of time this ageing bull market has been characterised by upwards movement on light and declining volume and low ATR. For the short to mid term, little concern may be had if price now rises again on declining volume. Current market conditions have allowed for this during a sustained rise in price.
It is also normal for this market to have lower ATR during bullish phases, and strongly increasing ATR during bearish phases. Currently, declining ATR is normal and not of a concern.
Considering the larger picture from the Elliott wave count, some weakness approaching the end of Grand Super Cycle wave I is to be expected.
From Kirkpatrick and Dhalquist, “Technical Analysis” page 152:
“A 90% downside day occurs when on a particular day, the percentage of downside volume exceeds the total of upside and downside volume by 90% and the percentage of downside points exceeds the total of gained points and lost points by 90%. A 90% upside day occurs when both the upside volume and points gained are 90% of their respective totals”…
and “A major reversal is singled when an NPDD is followed by a 90% upside day or two 80% upside days back-to-back”.
The current situation saw two 80% downside days on December 20th and 21st, then a near 90% downside day with 88.97% downside on December 24th. This very heavy selling pressure on three sessions very close together may be sufficient to exhibit the pressure observed in a 90% downside day.
This has now been followed by two 90% upside days: on December 26th and again on 4th January.
The current situation looks very much like a major low has been found.
Closure of the gap labelled an exhaustion gap indicates a consolidation or pullback may now be expected. A bullish signal from On Balance Volume now suggests any consolidation here may be relatively shallow and may even be short lived.
BREADTH – AD LINE
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals
will be noted with blue and bullish signals with yellow.
The AD line has made another new high above the prior swing high of the week beginning 5th of November 2018, but price has not. This divergence is bullish for the mid term.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals
will be noted with blue and bullish signals with yellow.
Breadth should be read as a leading indicator.
There is now a cluster of bullish signals from the AD line. This supports the main Elliott wave count.
The AD line has made a new high above the prior high of the 18th of January, but price has failed by a small margin to make a new high. This divergence is bullish.
VOLATILITY – INVERTED VIX CHART
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals
will be noted with blue and bullish signals with yellow.
Inverted VIX has made another new high above the prior swing high of the weeks beginning 26th of November and 3rd of December 2018, but price has not. This divergence is bullish for the mid term.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals
will be noted with blue and bullish signals with yellow.
There is now a cluster of bullish signals from inverted VIX. This supports the main Elliott wave count.
Inverted VIX has made a new high above the prior high of the 18th of January, but price has failed by a small margin to make a new high. This divergence is bullish for the short term.
DOW THEORY
Dow Theory confirms a bear market. This does not necessarily mean a bear market at Grand Super Cycle degree though; Dow Theory makes no comment on Elliott wave counts. On the 25th of August 2015 Dow Theory also confirmed a bear market. The Elliott wave count sees that as part of cycle wave II. After Dow Theory confirmation of a bear market in August 2015, price went on to make new all time highs and the bull market continued.
DJIA: 23,344.52 – a close on the 19th of December at 23,284.97 confirms a bear market.
DJT: 9,806.79 – price has closed below this point on the 13th of December.
S&P500: 2,532.69 – a close on the 19th of December at 2,506.96 provides support to a bear market conclusion.
Nasdaq: 6,630.67 – a close on the 19th of December at 6,618.86 provides support to a bear market conclusion.
Published @ 11:05 p.m. EST.
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Updated hourly chart:
Minute c of minor A or W may be close to completion. If price moves below 2,612.86 *edit then minute c would have avoided a truncation and this first hourly chart would be indicated as most likely.
Second alternate hourly updated:
I’ve changed minor 4 to consider a triangle. While price remains within this channel this is entirely valid.
For the triangle, minute c if it moves a bit lower may not move beyond the end of minute a below 2,612.86.
Note: that price point 2,612.86 is important now. The main hourly count essentially requires a new low below this point, the second alternate hourly count requires price to not make a new low.
Did I get the sell signal right CM?
Hey Peter,
I use the signal a little bit differently. I use it to signal trend reversal. Today it was useful to determine an exit point from the move down that started last night and was signaled last Friday.
You can get the idea from the chart. The retracement target is anywhere in the uncertainty candle’s range. Today the retracement went ½ point into the range, and that was it. This is very typical, where the retracement just barely gets into the uncertainty candle’s range and triggers the “switch” to begin trading the countertrend (reversal).
So yeah, bang bang, out of the short and into the long.
Here’s a big picture perspective
Thank you
Early signs of the I2 down launching…yeah!!
Breaking below 2612.8 low of 1/23 will be critical confirmation for me, followed by dropping under the big roundie and 23.6% fibo at 2600.
Loving the perfect hit and turn off the major down trend line.
My trend indicator is still showing mild up at the daily tf, but the hourly is currently mild down.
I am of the First Alternate persuasion which would see this morning’s gap down as the beginning of Minutte 3 of Minor A down. We should definitely be breaking below 2600 this week.
Starting to look a bit iv wave triangle-ish to me. Hmmm…..
Was thinking the same thing Kevin
The first alternate had a bottom around 2620ish I think
Then a run to 2700
Then a biggger drop
If it’s a triangle as I’ve marked, then I believe it’s the SECOND alternate hourly, and the triangle is the minor 4 (i.e., the minor 4 as shown in this model is not complete yet).
Timing wise, if this is what plays out, I’d expect the bust upward out of the triangle structure to occur on perhaps Wednesday…or thereabouts. D and E would have to fill in, taking time to roughly mid week.
That is actually the main count
No, the main has price action now already in the intermediate 2 down.
The second alternate hourly has intermediate 1 up incomplete, with price in the minor 5 up. If this is a triangle, it would appear instead to be price still finishing the minor 4, and the minor 5 coming up next.
That all said…we’ll see. A break down here would surprise me zero.
Got it
It feels like there is going to be the one last push upwards before a larger correction …
Vol is again being supressed
Will be interesting what happens after vxx maturity tomorrow afternoon
I recommend to all members to watch this week’s video by Ciovacco Capital’s YouTube channel. It is quite good from a technical analysis perspective. I find that Chris ‘s thoughts to pair nicely with Lara’s EW and TA perspective. Have a great weekend everyone.
Rodney,
Excellent stuff, thx!
Thanks Rodney
As aside
As I have been talking about VXX the main vix futures etn is maturing and switching over with the last date to set value Tuesday the 29th
There is a good possibility it has contributed to the upside in the s and p as people and institutions and even the managers of the etn itself have had to sell short term vix futures …
As well as any organized shorting would have little ramifications as once the price is settled Tuesday its a cash value situation .. no more need to actually cover
The switch to the new etn vxxb is in process and will be completed Tuesday
So it may contribute to price action through Tuesday
Rodney,
Thanks for post on this, good video. How is the recovery going?
My recovery is going along well, I think. Thanks for asking Paul C. I was doing really well until a few days ago when I awoke with severe pain. I do not know why this occurred. It has subsided a bit now though. Today I begin the first phase of physical therapy which is essentially to keep the joint flexible and free of scar tissue. The therapy to rebuild and strengthen the muscles comes at six weeks, another month or so for me. This week, I will start going into the office for a few hours each day. But I find I still need a lot of rest and icing of the surgery area. Thanks again for asking.
I will add that I am optimistic and planning a two week solo trek in the mountains for this summer. When I get back from that trip, I’ll go in and have the other shoulder done.
To boil it all down, my takeaway is that C.C. is pointing how the relatively high likelihood (from a historical data perspective) of a significant retrace (or more) of the move up from the December lows. Fitting well with Lara’s general model here of an intermediate (or primary) 2 down coming soon.
I’m ready. Let the 2 rip.
Good day Lara,
I am guessing there is a typographical error in the opening Summary. You write:
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Classic technical analysis at this stage favours a shallow sideways consolidation; the target would be about 2,550. But it may also be a sharp pullback; the target would be about 2,272.
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Is that last number supposed to be 2472 as in your First Alternate Hourly chart target?
Thank you Rodney. My mistake, and I’ll fix it now.