A small range upwards day ends with a red daily candlestick. An inconclusive day overall fits expectations of a consolidation.
Summary: A pullback or consolidation has begun. It may continue now through to the end of next week and possibly a little longer. Support is expected to be about 3,153; but if this expectation is wrong, it may be too low.
Three large pullbacks or consolidations (fourth waves) during the next 1-2 years are expected: for minor wave 4 (just begun), then intermediate (4), and then primary 4.
The biggest picture, Grand Super Cycle analysis, is here.
Last monthly charts analysis is here with video here.
ELLIOTT WAVE COUNTS
FIRST WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Cycle wave V may subdivide either as an impulse or an ending diagonal. Impulses are much more common, and it is clear at this stage that cycle wave V is an impulse and not a diagonal.
At this stage, cycle wave V may take another one to two or so years to complete.
A channel is drawn about the impulse of Super Cycle wave (V) using Elliott’s first technique. Draw this channel first from the high of 2,079.46 on the 5th of December 2014 to the high of 2,940.91 on the 21st of September 2018, then place a parallel copy on the low at 1,810.10 on the 11th of February 2016. Cycle wave IV found support about the lower edge.
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 new high by any amount at any time frame above this point would invalidate this main wave count in favour of one of the two alternate wave counts in the monthly chart analysis which are much more bullish.
The daily chart below will focus on movement from the end of minor wave 1 within intermediate wave (3).
Within cycle wave V, primary waves 1 and 2 may be complete. Within primary wave 3, intermediate waves (1) and (2) may be complete. Within the middle of intermediate wave (3), minor wave 4 may not move into minor wave 1 price territory below 3,021.99.
Within cycle wave V, the corrections of primary wave 2, intermediate wave (2) and minor wave 2 all show up clearly on the weekly chart. For cycle wave V to have the right look, the corresponding corrections of minor wave 4, intermediate wave (4) and primary wave 4 should also show up on the weekly chart. Three more large multi-week corrections are needed as cycle wave V continues higher, and for this wave count the whole structure must complete at or before 3,477.39.
DAILY CHART
Click chart to enlarge.
All of primary wave 3, intermediate wave (3) and minor wave 3 may only subdivide as impulses.
Minor wave 3 may now be complete.
Minor wave 2 was a sharp deep pullback, so minor wave 4 may be expected to be a very shallow sideways consolidation to exhibit alternation. Minor wave 2 lasted 2 weeks. Minor wave 4 may be about the same duration, or it may be a longer lasting consolidation. Minor wave 4 may end within the price territory of the fourth wave of one lesser degree; minute wave iv has its range from 3,154.26 to 3,070.49. However, this target zone at this stage looks to be too low.
Minor wave 4 may not move into minor wave 1 price territory below 3,021.99.
When minor wave 4 may be complete, then a target will again be calculated for intermediate wave (3).
When intermediate waves (3) and (4) may be complete, then a target will again be calculated for primary wave 3.
Draw an Elliott channel now about intermediate wave (3): draw the first trend line from the end of minor wave 1 to the end of minor wave 3, then place a parallel copy on the end of minor wave 2. Minor wave 4 may find support at the lower edge of this channel if it is long lasting or deep enough.
Price has recently reached just above the upper edge of the wide teal channel copied over from monthly and weekly charts. A reaction downwards here increases the technical significance of this trend line.
HOURLY CHART
Click chart to enlarge.
A correction to last about two weeks should begin with a five down on the hourly chart. That now looks complete and is labelled minuette wave (a). Minuette wave (b) may not move beyond the start of minuette wave (a) above 3,337.77.
A small channel is drawn about minuette wave (b). This channel is breached by downwards movement at the end of this session. This gives some indication that minuette wave (b) may be over. However, this particular market has a tendency to breach channels and then continue upwards as it forms rounded tops. It remains possible that minuette wave (b) may be incomplete.
Minor wave 4 is least likely to subdivide as a zigzag and most likely to subdivide as either a flat, triangle or combination. The first movement within these structures is a three, usually a zigzag. This zigzag is labelled minute wave a or w and is incomplete.
Minor wave 4 may end within the price territory of the fourth wave of one lesser degree. Minute wave iv has its range from 3,154.26 to 3,070.49. Within this range is the 0.382 Fibonacci ratio of minor wave 3 at 3,153.72. If this target range is wrong, then it may be too low.
SECOND WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This second wave count sees all subdivisions from the end of the March 2009 low in almost the same way, with the sole difference being the degree of labelling.
If the degree of labelling for the entirety of this bull market is all moved down one degree, then only a first wave at cycle degree may be nearing an end.
When cycle wave I is complete, then cycle wave II should meet the technical definition of a bear market as it should retrace more than 20% of cycle wave I, but it may end about either the 0.382 or 0.618 Fibonacci Ratios of cycle wave I. Cycle wave II may end close to the low of primary wave II within cycle wave I, which is at 1,810.10. It is also possible that cycle wave II could be fairly shallow and only barely meet the definition of a bear market.
The impulse is still viewed as nearing an end; a fifth wave is still seen as needing to complete higher. This wave count labels it primary wave 5. Primary wave 5 may still need another year to two or so to complete, depending upon how time consuming the corrections within it may be.
Primary wave 5 may be subdividing as an impulse, in the same way that cycle wave V is seen for the first weekly chart.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
It is very clear that the S&P is in an upwards trend and the bull market is continuing. Price does not move in straight lines; there will be pullbacks and consolidations along the way.
This chart is overall bullish. There are no signs of short-term weakness in upwards movement.
RSI is now overbought. That does not mean upwards movement must end here, because it can continue for several weeks while RSI reaches more extreme. RSI reaching overbought is a warning that conditions are now becoming extreme. A pullback or consolidation will follow and the longer conditions are extreme the closer this will be. However, assume the trend remains the same until proven otherwise. This warning should be heeded by careful attention to risk management.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The larger trend, particularly at the monthly time frame, remains up. Expect pullbacks and consolidations to be more short term in nature although they can last a few weeks.
In a bull market which may continue for months or years, pullbacks and consolidations may present opportunities for buying when price is at or near support.
Downwards movement dominated this session with 54% of total up/down volume, and volume is slightly stronger than yesterday’s upwards day. The short-term volume profile is bearish.
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.
Bear markets from the Great Depression and onwards have been preceded by an average minimum of 4 months divergence between price and the AD line with only two exceptions in 1946 and 1976. With the AD line making new all time highs this week, the end of this bull market and the start of a new bear market is very likely a minimum of 4 months away, which is mid May 2020.
In all bear markets in the last 90 years there is some positive correlation (0.6022) between the length of bearish divergence and the depth of the following bear market. No to little divergence is correlated with more shallow bear markets. Longer divergence is correlated with deeper bear markets.
If a bear market does develop here, it comes after no bearish divergence. It would therefore more likely be shallow.
Last week price has moved higher with a higher high and a higher low, but the AD line has moved lower. This divergence is bearish and supports the Elliott wave count.
Large caps all time high: 3,337.77 on 22nd January 2020.
Mid caps all time high: 2,106.30 on 17th January 2020.
Small caps all time high: 1,100.58 on 27th August 2018.
For the short term, there is a little weakness now in only large caps making most recent new all time highs.
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.
Today price has moved higher with a higher high and a higher low although the candlestick has closed red. The AD line has declined. This short-term divergence is bearish and supports the Elliott wave count.
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.
The all time high for inverted VIX was on 30th October 2017. There is now over two years of bearish divergence between price and inverted VIX.
The rise in price is not coming with a normal corresponding decline in VIX; VIX remains elevated. This long-term divergence is bearish and may yet develop further as the bull market matures.
This divergence may be an early warning, a part of the process of a top developing that may take years. It may is clearly not useful in timing a trend change from bull to a fully fledged bear market.
Last week price has moved higher, but inverted VIX has moved lower to make a new low below the low 4 weeks ago. This divergence is bearish and supports the Elliott wave count.
A cluster of bearish signals supports the Elliott wave count.
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.
Today price has moved higher with a higher high and a higher low although the candlestick has closed red. Inverted VIX has moved lower. This short-term divergence is bearish.
DOW THEORY
Dow Theory confirmed a bear market in December 2018. 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.
With all the indices having moved higher following a Dow Theory bear market confirmation, Dow Theory would confirm a bull market if the following highs are made:
DJIA: 26,951.81 – a close above this point has been made on the 3rd of July 2019.
DJT: 11,623.58 – to date DJT has failed to confirm an ongoing bull market.
S&P500: 2,940.91 – a close above this point was made on the 29th of April 2019.
Nasdaq: 8,133.30 – a close above this point was made on the 26th of April 2019.
Published @ 06:37 p.m. EST.
—
Careful risk management protects your trading account(s).
Follow my two Golden Rules:
1. Always trade with stops.
2. Risk only 1-5% of equity on any one trade.
—
New updates to this analysis are in bold.
Nice gap fill leaves no “unfinished business” for tomorrow. We should see another gap for a possible third down tomorrow. Clever bull trap.
Have a great evening all!
I posted a (bullish) count yesterday at 6.14pm and 6.25pm
It becomes more likely now…
Arnaud, I just saw your post, but then you are saying we have already completed minor 4 and now in minor 5 stage?
That’s what the market seems to be saying.
I took a long today and closed at the bell. No way going short now though
It’s yet to be determined. Lara’s count is still intact until it breaks ATH
It could be wave c of the B wave, which could still make ATHs
But then what does Lara’s chart of ATH invalidation price on hourly point to? I’m a little confused now. If we take ATH now, then the whole count on the hourly is wrong, isn’t it?
Well if you count the move down to 3235 as a 3 wave down A…
After the low we completed a & today b then started c of B today, it might be an expanded flat, hence may make new ATHs
I just saw that as I was finishing up today’s analysis.
Your wave count is technically valid, but IMO and experience it doesn’t have the right look.
I would not label minor 4 as complete yet, because it barely shows up on the weekly chart. I would expect minor 4 to last longer, it’s just too brief to be over at the last low.
Also, TA doesn’t support the idea. Upwards movement off the last low is too weak to be a resumption of the bull market.
I would consider the idea if we see a new ATH in the next few sessions and some strength within it, like a 90% up day or two back to back 80% up days.
Double bottom in place in RUT.
Opening STC order on 326 calls of straddle for limit of 2.00 even. Holding 326 puts for 0.50 cost basis…
Open gap proving strong resistance to corrective bounce. They are going to have leverage price past it for bounce to go higher. We will know what they are up to if we see in intra-day gap higher…
Triple Qs looking quite weak…snagging 220 puts expiring tomorrow for 0.75…..
Keep an eye on that VIX daily candle. If it closes green there will be PAIN ( for leveraged longs, that is…)
Opening “stink bid” on SPY 325 puts expiring tomorrow for a buck even. Hope to snag 20 contracts on sub-min two up…
filled, ha ha
man, you are good!
🙂
Just for kicks, buying a 326 SPY straddle expiring tomorrow for 2.50….tiny trade…
I know, things a bit boring right now…but not for long methinks!
Hourly chart updated:
Another five down may now complete, so far subminuette i may be complete at todays low and now subminuette ii looks like it needs micro C up to complete it.
Look for a head-fake out of this coil…
Man I would like to take a more aggressive trade on BLK but I have no idea when the hammer on that dog is gonna drop. The problem is I think it is going to happen with brutal suddenness and there won’t be time to capitalize after the fact..event driven implosions generally requite pre-positioning….maybe a few contracts…?!
Hi Verne, not sure if you saw my question yesterday, but what is the source of your negative stance on BLK regarding IMF and Ukraine money? I could not find anything on that online.
I posted a response that went into moderation so I re-posted without the link.
Check the previous thread…
I released the moderated comment.
We are starting to see some coiling price action here….and y’all know what that portends…!
Finally filled on roll. Widened spread by half a point to 326 X 327…
Speaking of spreads, I m holding a vertical bear 226 x 226.5 call spread on SPY expiring tomorrow. What I find interesting is that I have had an open order to roll the entire spread out to next Wed at the current offer and they are simply not biting. I wonder why?
I have tried to roll it every day this week on the dives and no takers….hmmnnn….!
I’m (pretty darn) sure you meant 326, not 226. Though I could certainly understand very few wanting to buy or sell 226 SPY calls for next week!!
Yes indeed! Just making sure everyone’s awake…! 🙂
Meant 326 X 326.5…
Bought back a RUT sold bear call spread at the lows here…I would like to sell it again later today or tomorrow at a substantially higher price. Bounce dog….
Meanwhile, got assigned overnight on my well in the money put debit spread in SPY that was to expire tomorrow. Pain in the ass. So I decided what the hell, I’ll just hold on to some of the piles of SPY I found in my account to sell back at new ATH’s in a month or so.
No kidding. One Saturday morning I woke up to find an extra 250K in my account and it was not because Santa had arrived early. You probably know what happened!
Fortunately, SPY tanked the following Monday so I dodged a huge bullet!
Yesterday an hour before the close, I stated the SPX was rolling over.
Today I say, “Look out below.” the SPX 3225 – 3200 level needs to hold. If not, I am looking for 3150. At that point, depending on the conditions, wave count and other indicators, I might be a buyer.
Have a great day everybody. I am on the road all day today late into the evening.
Buying March 20 TSLA 500 strike puts for 7.41; one half full load.
We are likely looking at an exhaustion gap in the making….
Music to my ears
My approach is a bit different; sold a call spread for Feb 7 right at the money, and will stop on any move above 650. I’m at least expecting the gap to fill here and maybe some profit taking selling next week. But I’m keeping the trade very small, given that I’m stepping in front of a freight train.
Boy I timed that RUT spread exit perfectly, nice!!!! Sometimes things work out well.
Bear call spreads definitely the more conservative strategem.
Make no mistake about it. TESLA is eventually going to make a few people millionaires. I was trading with John Carter a few years ago and watched him pull of a million dollar trade in TESLA in real time. It was mind-blowing…!!
I’d guess TSLA has made more than a few people millionaires are already on it’s move from 180 to 640!!!! Valued at more than GM and Ford combined…so laughable. Maybe tulips bulbs are going up!!!
Yeh…quite a bit of tip-toeing go on with that particular tulip…lol!
I want to see that gap at 567.43 (close below) firmly filled before I do any more tip-toeing myself…
It is absolutely hilarious to watch the BTF dippers and CTAs chase their tails after even a minor degree trend change! hehe!
Man tesla , shall I short you ?
Patience Pete! Momo strong on TSLA…
But it was like taking candy from a baby!
I wonder when this Momo/fomo will end:) this thing has 8 strong green candle bars in a row on a weekly.
I bailed on my TSLA’s short for a little worse that scratch on today’s strong move up against the broader market. Decided not to risk the earnings coming tomorrow given that price action.
Pre market has TSLA in $630 range…glad did not short it (yet).
I can see TSLA going to $675 before we get any rationale adjustment.
I urge you to remember AOL in the late 1990s.
The squeeze lasted for a *very* long time, stock-borrow became impossible, and there was a lot of money being lost on the short side. Look at the chart of AOL at the time (https://d13p2xj50zkyqm.cloudfront.net/promos/SFP/PUBS/TEK/TEK_HaloFi_Redesign_1218/TEK_HaloFi_chart_AOL.jpg) and ask yourself where you would have stopped your short AOL initiated at $100?
You can also remember the short squeeze on Volkswagen, which became the world priciest stock in 2008. There was no fundamental reason for VW to become that expensive, so many banks had taken massive short position on the stock (these were pre-Volcker rule days, totally allowed), positions so big that in one instance I know of, the Board was aware of the position. Imagine the losses when the stock borrow disappeared!
It is completely impossible to know where the top will be on TSLA. You know retail cannot borrow the stock so you buy puts. The investment banks that sold you the puts also sold shares to hedge – the repo is very expensive, but there is plenty of stock available to borrow. Imagine what will happen when the borrow will become unavailable for these banks and there is a recall on their position?
Don’t “invest” more money on puts than you can afford to lose gracefully. My 2 cents only, there are always lottery winners, but there are not many, and they are just lucky.
All good points, Arnaud.
Agreed
All excellent points and nice chart too!
I urge you to remember AOL in the late 1990s.
The squeeze lasted for a *very* long time, stock-borrow became impossible, and there was a lot of money being lost on the short side. Look at the chart of AOL at the time (https://d13p2xj50zkyqm.cloudfront.net/promos/SFP/PUBS/TEK/TEK_HaloFi_Redesign_1218/TEK_HaloFi_chart_AOL.jpg) and ask yourself where you would have stopped your short AOL initiated at $100?
You can also remember the short squeeze on Volkswagen, which became the world priciest stock in 2008. There was no fundamental reason for VW to become that expensive, so many banks had taken massive short position on the stock (these were pre-Volcker rule days, totally allowed), positions so big that in one instance I know of, the Board was aware of the position. Imagine the losses when the stock borrow disappeared!
It is completely impossible to know where the top will be on TSLA. You know retail cannot borrow the stock so you buy puts. The investment banks that sold you the puts also sold shares to hedge – the repo is very expensive, but there is plenty of stock available to borrow. Imagine what will happen when the borrow will become unavailable for these banks and there is a recall on their position?
Don’t “invest” more money on puts than you can afford to lose gracefully. My 2 cents only, there are always lottery winners, but there are not many, and they are just lucky.