5/2/14 Elliott Wave Update

There is no change to the Elliott Wave options in the long term.  In relation to the ending diagonal options, a sideways pattern since (1) remains a lesser option due to the complexity and proportionality of the pattern.

Note that the wave higher from (4) is small in relation to (3) and (1).  This suggests that more development of the wave underway since that time will occur before it is complete, whether or not an ending diagonal or sideways pattern is ongoing.

There are several reasonable options in the chart above.  A flat or other sideways pattern lower since (3) is a good option, except prices have not yet reached the April high.  A test of this level would improve the option substantially.

There can also be a flat lower from the A high.  This option makes a greater deal of sense because A was exceeded by [b] and the [b] wave looks complete.

Why does [b] look complete?  First, it looks corrective.  When looking for impulsive options higher, the sell-off following the Friday high has no good proportionality with any wave within [b] with the exception of a sideways pattern from the 29th-30th.  Because the 30th-2nd rally really cannot be counted as an impulse wave, the most bullish count in the chart above is a flat lower since the 29th.  Second, the structure of the [b] wave higher is complex and already difficult to count as a double zigzag given the lower low made on Friday.  The lower low and overlap that came with it only reduced the amount of possibilities.

If there is a flat lower since the 29th, the structure of it is a very wide and complex pattern making it undesirable.  Therefore the wave count in color is preferred.

Bottom Line:

Last time, it was stated, "at this time, the waves do not suggest an impending correction of anything substantial".  This came to fruition last week.  However now the waves higher since the 28th look corrective.  Since there were 3 waves higher that nearly made a new all-time high above (3), the medium-term remains bullish.  A test of the 1815 level remains possible, but ~1845-1850 should hold prices.  A test of this level is expected before any meaningful rally resumes in the short-term.

The long-term suggests a winding down impulse wave from a late 2011 low, but the intention of the market after this impulse completes remains uncertain.  There can be a zigzag or impulse higher since the 2009 low which have much different implications for the market in the years ahead.  This makes the view neutral in the long-term.

short-term (the week ahead): bearish

medium-term (the weeks/months ahead): bullish

long-term (months to years): bearish

very long-term (years-decade): neutral

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.