4/25/14 Elliott Wave Update

The longer-term options remain unchanged.  Testing a new all-time high will signal an ending diagonal is probably underway since 2013 beginning at [4], B, or (2).  If this happens, the sideways correction option since (1) is still possible, but not very strong.

There appears to be either a zigzag or impulse higher forming since the 2009 low.

Because 1875 resistance was broken last week and there is now a large retracement of the (4) down move, the possible flat higher since W option has lost a good amount of strength.  A flat higher from Y is quite weak because it is so off balance and its waves lack so much proportionality.

An impulse higher unfolding since (4) is possible, but it requires a flat down since A in February.  This option is really a stretch of the imagination.

A flat lower underway since the (3) high is possible, but as mentioned on Wednesday, this would be a very rare corrective wave within an ending diagonal.  A flat in this position would work best as wave 'x' within a double zigzag higher since (2) which is the 'b' wave of sideways correction since the [4] high from 2013.

There are two good possibilities to describe wave action higher since 4/15: an impulse (in color above) or a zigzag.  Wave [x], since it was so close to exceeding A, makes the waves down since A look like a correction.  Really the entire structure from the 22nd-24th high is a very corrective statement by the market.  Even though support around 1870 did not hold, waves down since A should be a correction of some kind, probably a flat or double.  A sideways correction in this position works well with the idea that a zigzag-family pattern higher is unfolding since the (4) low, the theme of this post no matter what the correct wave count is.  This is because second waves are usually zigzig-family corrections.

Bottom Line:

The short-term waves look bullish and a test of ~1900 resistance is likely to happen within the next week or two.  A continued correction since A is possible, but prices will likely simply move higher.  The sideways option since (1) in January 2014 is not strong but is still acceptable if there is a new all-time high in the short-term.  The best view is an ending diagonal higher unfolding since [4] in 2013 or later where prices will exceed 1900 to challenge the upper red line in the first chart.

An ending diagonal would likely complete the impulsive move higher since the late 2011 low of [C] or b.  What happens after this impulse wave terminates is not clear, but at least a 5% or 10% correction should happen no matter which wave count is correct.

short-term: bullish

medium-term: bullish

long-term: bearish

very long-term: neutral

Note:
The next update will be Friday 5/3.

4/23/14 Elliott Wave Update

In the long term, the Elliott wave options remain the same.  A double zigzag higher since (2) is possible within a sideways correction that began at the wave (1) high, but this option is not strong due to the complexity and lack of proportionality between the waves of the pattern, regardless of what they end up being.  If there ends up being a new all-time high without reaching a new short-term low first (something at or below ~1815 support), the ending diagonal options above will clearly look like the most strong options.  As mentioned in previous updates, ending diagonals are usually not the 5th of 3rd waves of an impulse.  Therefore, an ending diagonal would signal the end of an impulsive move higher that began in 2011.

An incomplete impulse higher since (2) is not strong due the the strange flat wave required between A and (4).  The waves lower since the last all-time high best resemble something corrective.  A deep retracement of this pullback has followed which supports the idea of a complete corrective wave lower since the last all-time high.  A flat higher since the W low is still a possibility, but it is growing weaker day by day due to the retreacment that has been achieved.

Other options since (3) are weaker.  A flat down still developing since (3) is possible, but consider what was found above; the ending diagonal options in the first chart would look strong if the wave higher from (4) continues to a new all-time high.  It would be very rare to see a sideways corrective wave within the 2nd or 4th waves of an ending diagonal.

It is important to note that (i) is longer than (iii).  This fact might seem to suggest an impulse higher is complete, but wave (i) was clearly the weakest of the three legs which speaks against the option; the strength of the legs should be just the opposite in an impulse wave than they currently are in this possibility.  On the other hand, a 3rd wave is usually longer than its 1st and 5th wave counterparts which is not the case with the wave count in color above.  In this option wave (iv) is also quite large which creates an undesirable feature.

From (4), there can be a complete zigzag higher followed by a correction perhaps incomplete.  This counts much better than the other possibilities.  If there is an ending diagonal unfolding since [4] or later, a double zigzag starting at (4) works fine as only single zigzags higher have likely been seen thus far (this provides alternation, a typical feature of the actionary legs of any wave).  If wave 'x' of a double zigzag is underway since (iii), the expectation is for a pullback or base to form so the market has enough energy to move higher again beyond the last all-time high and there is a good size relation between the wave higher from (4) and wave (3).

Bottom Line:

Last time, the following was stated: "It is the sideways and ending diagonal options that clearly stand out as the best options.  While at this point it is difficult to say which is correct, new all-time highs are expected in the near future before any meaningful sell-off.  So there is a very strong long play in this market.  1740 support is the lowest this market should go before challenging new all-time highs again due to a lack of bearish possibilities."

As discussed above, the sideways option since (1) is now not so strong due to the waves seen this week.  This suggests that 1740 will not be seen before another all-time high.  In fact even a test of 1815 will not look that bearish anymore.  There is likely an ending diagonal underway since a point at or after [4].

In the short-term, it is difficult to say what is exactly happening, but the lean is towards a complete wave higher at (iii) reached 4/22.  Regardless of what it is, the wave beginning at (4) should be part of a larger zigzag-family pattern higher developing which will reach a new all-time high.  At this time, the waves do not suggest an impending correction of anything substantial.

4/17/14 Elliott Wave Update

The options in the longer term remain the same but with one addition: an impulse higher following the wave [4] low.  If there is a sideways correction underway since the wave (1) high, it works very well as the 4th wave (last corrective wave) of an impulse higher that began at the 2011 low.  The only other reasonable way of using a correction in this position is as the 4th wave within an impulse higher beginning at [4], but this is a weak possibility due to the lack of proportion between it and the 2nd wave of the move.

The rally last week labeled as [a] now strongly resembles an impulse that is complete or in its final stages.  This wave still gives rise to various possibilities since the last all-time high which are listed above.  The flat higher since W is still preferred over a correction beginning at Y sue to its simplicity.  The triple zigzag wave (4) may seem complex, but structurally it actually works very well.

There is very nice symmetry to the advance since Tuesday where the gap higher on Wednesday was the core of the move.  The wave crossing at the close, and overlap of all waves after the core, strongly suggest the move is complete or nearly complete and a correction will begin.

If the correction moves under support in the 1840s, the correction since the last all-time high is likely incomplete.  If incomplete, this larger correction means prices will move back down to the 1810s, then perhaps under this level.  If the 1810s hold or are broken slightly (maybe 1800 is reached), the ending diagonal options since [4] in the first chart remain in play.  If prices stay under support and wedging is lost invalidating the ending diagonals, look for a sideways correction underway since (1), the January high.  As discussed above, a sideways correction in this position is probably the last corrective wave) of an impulse higher that began at the 2011 low

If there is an ending diagonal underway since [4] or a point after [4], this pattern is probably terminating the impulse higher since 2011.  This is not due to the structure as it can easily be labeled as a termination of a third of a third wave (for example just use the colored labelings above but use [C] of b as the starting point of the impulse).  The reason is that ending diagonals usually terminate patterns of a larger degree than the ones that they are contained in.

It is the sideways and ending diagonal options that clearly stand out as the best options.  While at this point it is difficult to say which is correct, new all-time highs are expected in the near future before any meaningful sell-off.  So there is a very strong long play in this market.  1740 support is the lowest this market should go before challenging new all-time highs again due to a lack of bearish possibilities.