A little more upwards movement has again reached the upper edge of a multi-year trend channel.
The main Elliott wave count still expects minor 4 may be incomplete.
Summary: A pullback or consolidation is most likely still underway. It may continue now through to the end of this week and possibly a little longer. A downwards swing may begin tomorrow that may end slightly below 3,214.68, or it may fall short of this point.
Alternatively, it is possible the pullback was brief and shallow and over on the 31st of January. This alternate wave count has little support from technical analysis.
Three large pullbacks or consolidations (fourth waves) during the next 1-2 years are expected: for minor wave 4 (underway), 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 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 now looks 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 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. It is possible that minor wave 4 may breach the lower edge of the channel as fourth waves are not always contained within a channel drawn using this technique. If minor wave 4 breaches the channel, then it shall need to be redrawn using Elliott’s second technique.
Price has again reached the upper edge of the teal channel copied over from the weekly chart. Although price has closed above the trend line, it has done so on a very unconvincing day. Another reaction downwards from here looks fairly likely.
Minor wave 4 may subdivide as any corrective structure, most likely a flat, triangle or combination. Within all of a flat, triangle or combination, there should be an upwards wave which may be fairly deep. That may now be complete.
HOURLY CHART
Click chart to enlarge.
Minor wave 4 is here labelled a possible expanded flat correction, but it may still morph into one of either a combination or a running triangle.
If minor wave 4 unfolds as an expanded flat correction, then within it minute wave c downwards may begin tomorrow. The most common Fibonacci ratio for minute wave c within an expanded flat would be 1.618 the length of minute wave a, at 3,148. However, this target would break below support of the blue Elliott channel. Although this is possible, it has a lower probability than price finding support there. The blue channel may be used as a guide to where an expanded flat may end.
If minor wave 4 unfolds as a running triangle, then minute wave b may be complete or may extend higher. Minute wave b may not move beyond the end of minute wave a below 3,214.68.
If minor wave 4 unfolds as a combination, then minute wave x within it may be complete, or may extend higher. Minute wave y would need to unfold as either a flat or triangle. Minute wave y may end about the same level as minute wave w at 3,214.68, so that the structure takes up time and moves price sideways.
ALTERNATE DAILY CHART
Click chart to enlarge.
This alternate daily chart looks at the possibility that minor wave 4 may be a complete zigzag over at the last low. This alternate chart does not have as much support from classic technical analysis as the main wave count.
Minor waves 2 and 4 for this wave count both subdivide as zigzags; there is no alternation in structure. Minor wave 2 is deep at 0.83 the length of minor wave 1, and minor wave 4 is shallow at 0.26 the length of minor wave 3; there is alternation in depth. Minor wave 2 lasted 10 sessions and minor wave 4 lasted 7 sessions; the proportion is acceptable and gives the wave count the right look.
There is no adequate Fibonacci ratio between minor waves 1 and 3. This makes it more likely that minor wave 5 may exhibit a Fibonacci ratio. The target expects minor wave 5 to exhibit the most common Fibonacci ratio within an impulse.
Within minor wave 5, no second wave correction may move beyond its start below 3,214.68.
ALTERNATE HOURLY CHART
Click chart to enlarge.
Minute wave i may be incomplete and may extend higher. If price does continue higher tomorrow, then the probability of this wave count would increase.
When minute wave i may be complete, then minute wave ii may move lower, to end about either of the 0.382 or 0.618 Fibonacci ratios.
Minute wave ii may not move beyond the start of minute wave i below 3,214.68.
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 weakness in upwards movement.
A pullback or consolidation has begun. This is relieving extreme conditions. Look for strong support below about 3,020 to 3,025.
If price does not move lower tomorrow by a reasonable distance, then this weekly candlestick will be very bullish. If that happens, then the main and alternate daily and hourly wave counts may be swapped over.
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.
Sustainable lows may be identified by a 180° reversal of sentiment in a 90% down day followed by one or more of the following things:
– Either a 90% up day or two back to back 80% up days within 3 sessions of the 90% down day.
– RSI may reach oversold and then exhibit bullish divergence.
– A strong bullish candlestick pattern with support from volume.
In the absence of bullish reversal signs, expect the pullback or consolidation to continue.
Today completes the third candlestick in an Advance Block pattern. This is a clue that the rally is losing force. In conjunction with now strong and triple bearish divergence between price and RSI, after the prior upwards trend reached extreme and after RSI reached overbought, caution for long positions is warranted.
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 last 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 both price and the AD line have moved lower. Downwards movement has support from declining market breadth. The AD line has made a slight new low below the short-term low three weeks prior, but price has not but only by 0.04 points. This divergence is bearish, but it is very weak. The important point to note is that it is not bullish.
Large caps all time high: 3,337.96 on 6th February 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 made a slight new all time high, but the AD line has not. Today price has moved higher, but the AD line has slightly declined. This divergence is bearish and supports the main 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 is clearly not useful in timing a trend change from bull to a fully fledged bear market.
Last week both price and inverted VIX have moved lower. Inverted VIX is falling faster than price. It has made a new mid-term low below the prior low 8 weeks ago, but price has not. This divergence is bearish.
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 both price and inverted VIX have moved higher. Price has made a slight new all time high, but inverted VIX has not by a wide margin. There is again all of short, mid and long-term bearish divergence. This supports the main Elliott wave count.
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 @ 08:00 p.m. EST.
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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.
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New updates to this analysis are in bold.
So far, so good, for this wave count.
But the weekly candlestick is going to look very bullish…
Thanks Lara for timely guidance (as always)
Lara,
Are you placing the beginning ‘0’ of your Fib retrace @ hi of minute b or Minor 3?
In minuette (i) down, micro 2 up is much smaller than micro 4. It looks alittle out of prop., but still O.K??
Thanks…
It’s still okay. But I have yet to spend time on the five minute chart to check it works out.
To see where the Fibonacci retracements are drawn from, look to where the —– lines extend back to. This one is drawn from the high of minor 4, it’s giving targets for minor 4.
Correction in SPX has reach and executed a small pivot off the level of bearish symmetry (size of the match ii wave). Might hold, or this may very well fall to the 38.2% retrace level around 3300 on Monday/Tuesday. Deeper than that? Sure, maybe, but not my “most likely” view at the moment.
Note that RUT has been weaker, and is approaching a full 50% retrace of the one week move up. Meanwhile, NDX stronger than both, and above this morning’s lows. So the market is a tad mixed, and I don’t see the overall weakness I would expect if a major C wave down was launching in SPX.
If they don’t leave traders in a fix then the MMs have not done their job properly. Travel industry has not been reflecting the coronavirus impact fully yet. China slowdown will hurt all around not just OIL but basic materials as well.
I am not one who believes that SPX price action is “controlled by market makers”. It is vastly influenced by Big Money (banks and very large institutional investors). They are not coordinating to manipulate the market (though they are aligned most the time in their outlook and thus generally in their buying and/or selling campaigns, but not due to overt coordination). The market leaves traders “in a fix” because it’s full of semi-random noise caused largely (but not exclusively) by disparate big money action at different times (because they aren’t coordinating!). My view, some believe otherwise, that’s okay.
If the main count proves to be correct, it’s amazing how expanded flat played out with “b” high being at around 105% of wave “a” – perfect textbook definition. Sometimes i wonder how it all plays out so nicely by the textbook. Just amazing stuff!
It will not surprise me if the markets close unchanged or little down for the day. There has been constant churn and with more money flowing into funds like retirement saving…buying pressure will persist. Let’s see if that makes sense.
Anyone has thoughts on TSLA long or short?
Rishi,
now you are trying to apply longer-term fundamentals onto short-term technical analysis. You are right in mid-term, but immediately today, start of next week your thesis might not play out.
Absolutely correct, I am working on short and longer term plays as opportunity arises. Hotcakes and Qs are good for short term while other specific ones for longer term. Individual stocks plays you will have to pick well in advance otherwise you might be too late to the party.
Despite the move down the Q PUTs have been quiet. Either the MMs are playing trick or market wants to move up.
Well, we know that. We are probably still in 4th minor now. And it will be over soon – so obviously, we are still in a bull market – still wave 5 up to go, coming to its end at some point, but still up mid-term.
I’m doing my best to ignore TSLA. I don’t like playing with wild animals!!! I’d have never dreamed it would run up to 950, so what that tells me is “just stay away”, because I haven’t a clue.
Parabola busted! 😉
I noticed on this forum that there are always alternatives and people make their alternate projections. It’s wonderful to know the other side and be aware of it. However, I have also noticed that when market makes extremes, it makes more people than not drop their original theme and they immediately turn to the other side. That’s the whole premise behind the market – it makes you doubt yourself and jump the ship right at the wrong time. Otherwise, it would be too easy to make money in this business. If the theme works, no need to change it unless proven otherwise. Lara’s main count works so far – let’s stick with it until it gets invalidated, if at all. Bulls and bears make money, pigs get slaughtered.
🙂
Kevin, in your opinion can the Oil low hold, if the SPX goes into full “c” down? Just would love to hear your thoughts….
I’m no oil expert…but I would expect oil to keep falling if we get into a significantly deeper SPX correction.
The travel slowdown, the general glut of oil, the growing pressures to use less oil…I am not bullish oil at all in the bigger picture.
But I wouldn’t short it here right now, either. It’s been in a big range for over a year, and now it’s relatively low in that range. And I’m rather bullish the intermediate (next month or two) in equities, so I would expect oil to rally back up into that range commensurate with that.
I note glancing at the “OIL” chart that anytime there is a big rise, then a tiny pivot then a BIG down bar…it starts a significant sell off. If I was an oil trader, that’s where I’d look to take shorts. 4/25/19, 9/16/19, 7/16/19, 1/7/20, 10/9/18. Of course hindsight is 20-20, but its a pretty consistent signal.
My $0.02, worth less…
Lol, love it
Yes, like all great analysts…”it may go up, it may go down!!”. Lol!!!
my friend lives in Tianjin China-a city of 20 million… he said the streets are empty. total demand interruption. I dont know if they can shutter production fast enough? i think oil will be corona virus dependent for the short term no matter OPEC headlines…
Backing up the truck …
Picking hotcakes again? You must love them as they come right out from the oven..
1/4 sold, looking to sell another quarter for $3 (got them for 1.8)
Excellent timing Peter
Hi Lara,
SPX has already hit 3325 .54 in the session open which is below short term invalidation for the main count of 3330.53 which you mentioned yesterday. What does it mean then? Does it mean you have to re-label main count? Thank you.
It mean that the “c” wave down started without “b” making a new high… if I am not mistaken ….
I thought we made new high yesterday at 3347.96 with that “b” minute wave. Am I missing something?
Yeah, that was the chart from 2 nights ago right? Last nights doesn’t have one …
Right, that’s why I wondered. I also noticed today’s chart doesn’t have any invalidation level.
There is no short term invalidation point on the alternate in the analysis above.
I think MSFT is at a significant TOP around $185 and move down will be interesting. Any thoughts?
It does look like a 5 wave move starting Monday 1/27 may be complete or very close to it.
But shorting it is shorting in front of a freight train. MSFT has been in an “up” to “Strong Up” trend on the monthly chart every single month since…August of 2015. The weekly trend has been “Strong up” every single week since Oct 21 2019.
I won’t be shorting. I’d suggesting buying pullbacks; I’ve made some decent coin on MSFT in the last few months and expect to again in 2020.
One model of the price action in SPX at the hourly tf…based on the (more) bullish daily tf count I posted earlier/below. Price in this model is in the early stages of a minute v of minor 3 (still). (Though shifting it all up one degree makes some sense to me, but it’s all relative so that doesn’t really matter.)
I’m viewing this so far small correction in progress as an opportunity to get positioned in line with the monthly and weekly trends (which are both in a “strong up” state per my trend indicator).
Plenty open to alternative views…
Kevin
Agree and am leaning into uptrend continuing at least till 21 Feb 2020. This market will or might correct sooner but the current strength (read money supply) is just too much for fundamentals to overcome. It might prove me wrong but that won’t be the first or last time.
ps: NDX is already almost back to new ATH’s after opening down like the other markets. My larger play right now is in NDX (sold put spreads way down there for Feb 20 expiry) because of it’s massive relative strength recently, which continues today.
NDX’s price action since last Friday’s low leans me fairly strongly against the main, and toward the alternate and/or even more bullish models.
I am wondering if some of the money from Chinese market is not being rotated in the US equity market until the coronavirus issue settles. It is unreal to see the kind of strength under the market even at the current levels.
Daily OBV hit new ATHs the last 2 days. This is very significant in my opinion. It supports the Alternate daily count. I suspect we see SPX at 3400 before we see 3300 again.
Rodney – Your comments/observations are always welcome. This is what I am expecting given the strength under the market hence the earlier comment the we might be knocking 3400 in a week or so given.
Confused about your comments – if you believe we are going to 3400 in the next 2 weeks, why would MSFT be at its top? MSFT is the largest BM stock – it cannot go down significantly if market is up, by definition.
Elgleon – I see MSFT down into the year end (Oct-Nov timeframe) but not short term. It is a slow moving stock so not expecting quick turndown on it. Hope that clarifies it a bit.
Thanks, Rishi. I see what you refer to. I would tend to agree with you, but this stock would pretty much do what the market does, same direction, just with higher beta. Fundamentals are strong for this stock but it ran ahead of itself. Too expensive for any smart fundamental investor to buy now.
Hi Rodney,
OBV, as all others, is a lagging indicator. Why hitting ATH means it will go higher even more?
News out of China indicates 400 million people under lockdown…
I thought I saw Verne’s post here and responded to it now both are gone missing…may be under moderation.
Hot cakes picked yesterday were locked for quick profit this morning..maybe see if the opportunity comes again..
Sold some stale ones at a discount …
I am trying to be nimble as there is too much liquidity via repos to hedge funds..it will disappear until then small and baby steps
Francis Boyle is professor of international law here at the U of I in Champaign. He wrote the rules governing Biological Warfare and is a bit worried. University officials have elected to allow students returning from Wuhan to “self-quarantine” and many of us are stupified by this kind of complacency.
Still trying to get my hands on some original electron micro-graphs but I heard from enough experts to be fairly convinced that this virus escaped from the P4 lab in Wuhan. Please take precautions if you are in an area of exposure.
Peter S or Ari, have you been able to garner any more info from your colleagues?
Another interesting development:
https://www.nature.com/articles/s41586-020-2008-3
https://www.zerohedge.com/health/wuhan-institute-virology-and-chinese-army-submit-patent-gilead-anti-ebola-drug-fight
Has anyone heard the
https://ab-tc.com/china-seek-for-courts-approval-to-kill-the-over-20000-coronavirus-patients-to-avoid-further-spread-of-the-virus/
https://www.mcoscillator.com/learning_center/weekly_chart/?utm_source=McClellan+Chart+In+Focus&utm_campaign=c85856aab0-email_cif_2020-02-06_choppy_or_simple_structures_i&utm_medium=email&utm_term=0_9e79f8200f-c85856aab0-151474021
Tom McClellan’s Feb 06 article favors Lara’s main count. I charted it using Stock Charts to see if I came out w/same result…here it is…
Thanks Melanie for sharing!
Thanks Melanie, interesting article.
I’ll start paying more attention (like Rodney) to the MO from now on with the EW especially to see if the swing low is in.
A more bullish alternate (first shown about 2 weeks ago). Completion level targets shown, and a projection of wave 3, showing the max level for wave 5 per this count.
Lara couldn’t the bearish TA signals be heralding the start of minute ii in the alternate count?
Possibly.
Also, this has occurred to me, if minute ii unfolds here, then within minute iii , minuette (i) doesn’t make a new high and then minuette (ii) unfolds, it would look the same as a triangle continuing for minor 4.
Only the subdivisions would be different.
True but I’d say that the form, and as you say the subdivisions, would soon differentiate a meandering triangle to a 3rd wave.
Number uno