Market Retreats: a Complete Sideways Pattern or More Selling to Come?

Last time the long-term options were discussed thoroughly and on this front, the view remains the same.  Over the last two years, an impulse higher developing since [4], (2), or (4) is a weak option.  A sideways correction beginning at (1) or an ending diagonal higher since (4), B, or (2) are far better options.

The waves since 2009 can be impulsive or corrective.  It will take additional action in the next months to years to better determine which scenario is correct.  This very long-term scale is certainly not relevant to the suggestions we post in the member's area.

A sideways correction beginning at (3) is possible, but is not that likely given the longer-term picture.  A sideways correction since (1) would allow this sideways option, but it adds an additional degree of complexity and reduces the proportionality of waves within the pattern.  It also makes the pattern less proportional to its 2nd wave counterpart in late 2011 so it is not that desirable.

A double zigzag higher developing from the (4) low would also complicate the situation, but this move could fit into the sideways option since (1) or the ending diagonal possibilities (the ending diagonal possibilities stay valid as long as price since (4) travels less than the price distance of (3)).

A sideways pattern since A is also a possibility, but a weak one.  A complete flat from A to 1 seems reasonable at first, but is not even suggested above because it is essentially impossible impossible to work into the [a] to C action into any kind of zigzag-family wave.  [b] to [e] also cannot be viewed as a flat when trying to force the matter.

An incomplete sideways correction since A is a better option, but a complete flat lower since [b], the most simple way to work in the waves, is a problem due to the fine structure of [d]; it looks like a double zigzag and if this is true, there can be no zigzag-family wave higher from [c] to C.  If there is no complete flat in this position, things get complicated in a hurry.  Maybe there is a double zigzag higher since [a], but [b] it hard to work in as a single zigzag.  This would also make the double zigzag since [a] very large in relation to [a] which is not that common.

There is probably a complete single zigzag higher since the (4) low because it has no problems intrinsically, is simple, and works well with the good longer-term options.  Especially after the breakdown this week, this possibility is clearly the most natural way of counting the structure.

Last time, it was stated, "[Thursday] prices should continue to sell-off.  There can be a gap lower and if there is, this will probably prove the be the core of an impulse wave down beginning at C."  The gap did not form all of the core, but prices did continue to sell-off in an impulsive fashion exactly as expected.  There is now very likely a complete impulse wave down to 1.

It is not exactly clear what is forming since 1, but this so far has a corrective look to it.

Continue reading my commentary, the work of two other analysts, and the consensus opinion at http://ewaveanalytics.com.

5/14/14 Elliott Wave Update

We begin today's update by pointing out the wave count possibilities that exist on large to narrow scales.  Since the 2009 low, as has been discussed, there can be a zigzag or impulse higher developing.  The strongest option for the zigzag option is counted above in color.  It can also still be underway where the last impulse leg of the zigzag starts at [C] in 2011.  Turning [D] and [E] into a 1st and 2nd wave must be forced however and is not a great option.  Wave counts since the b low for impulses not essentially complete have low probabilities, regardless of how they are counted.

If an impulse beginning at the 2009 low is still underway, an impulse higher since [C] in 2011 will be the correct choice.  While an impulse higher from this point can be essentially complete, it is a weak wave count (it uses the impulse option from [E] to A in 2013).  Stronger is an impulse still mature, but using an ending diagonal higher underway since (2) in 2013 or a sideways correction beginning at (1) in 2013.

An impulse higher since [4] is a possibility, but either the core of this wave still lies ahead or there is an out-of proportion sequence of waves higher unfolding.  Because both of these are low probability events, this count is very unlikely.

Inspecting the last 2 years for a moment, we find that there can be a sideways correction since the (1) high developing or an ending diagonal beginning at [4], B in 2013, or (2).  These are all reasonable options worth considering.

How do the last 5-6 years fit into the larger picture?  First, there is a good probability that [III] marked a 3rd wave that is complete, rather than an impulse that is still underway since the [II] low.  If [III] is then a major top, something sideways likely did unfold or is unfolding.  There is decent proportionality between [II] and [III] to (a/w), so an impulse wave [V] can be underway.  There are concerns about the very high market cap to GDP ratio and pop-culture sentiment at this time however; these indicators do not seem to form particularity fertile grounds for a rally continuing for years to decades without a significant pullback first.  Maybe there is an impulse higher since (a/w) forming that is winding down as the first wave of a larger impulse.  There can also be another test of the 2002/2009 support level.  These impulsive and corrective options are both very good and suggest that the 2002/2009 support level will hold.

There is a very clear-looking 3 waves higher since the wave (4) low that jumps off of the chart above.  Obviously there can be a sideways correction underway since (3), however keep in mind that this is only applicable if something sideways is unfolding since the early-2014 wave (1) high.  This would be a very complex pattern but the proportionality of its waves is reasonable.

On a similar note, a double zigzag can be underway since (4) where the first zigzag completed at (5).  This would fit into a sideways pattern since (1) or an ending diagonal leg higher from (4), but this is adding a layer of unnecessary complexity to the picture.  The markets' moves tend towards simplicity.  Important to note here is that an ending diagonal higher since (2) in 2014 is possible and worth considering, but then a greater height above the (3) high is preferred.  This double zigzag option would resolve this height issue, but again of course at the sacrifice of simplicity.

Something sideways and still underway beginning at A in April is also possible, but it would require some strange looking waves that do not count naturally.  The structure seems to require a flat lower since [b] marked above with the horizontal line.

An impulse higher since B where its core is still ahead is possible, but is not likely or worth noting due to the wave structure higher since [c] ([d] and [e] essentially must be a 3-wave moves).

A far better approach to the above picture is to take the three waves higher since (4) and count them as they first appear, a zigzag with triangle B wave which is in color above.

Finally, before the final analysis, the short-term waves since C show 5 waves lower.  This move in and of itself can be an impulse, but is more likely a set of 1-2 waves developing into a larger impulsive move lower due to the balance of the pattern so far.

The final review of the market can be found at http://www.ewaveanalytics.com.

5/9/14 Elliott Wave Update

The structure higher since 2009 works best as a nearly complete zigzag higher or a developing impulse wave.  The pros and cons of these options were discussed in the first part of an earlier update in April here.

Regardless of which longer-term wave count is correct, we are almost certainly watching an impulse wave higher that began in 2010 or 2011 wind down.  An ending diagonal higher since the 2013 low of [4] or B is the strongest option.  Weaker due to the subwave proportionality is a sideways correction underway since (1).  Something impulsive higher since [4] or B is a weak option due to the lack of strength and subdivision the market has shown; this would be a complex impulse wave and as the next chart shows, the subwave structure makes it questionable.

If the market is still drawing out impulse waves higher (e.g. an impulse wave higher since [4]), as explained in earlier updates, there must have been a sideways pattern from A to (4).  This is a weak option as many parts of its structure are real stretches of the imagination (e.g. an ending diagonal from (3) to (4) is required).

The best possibility above is a sideways pattern unfolding or complete since A.  A complete triangle looks best because of the complex set of zigzag waves chopping in a tight and contracting range.  The triangle does not have great symmetry, but this option is preferred a bit over an ongoing sideways correction.

The chart above shows in more detail just how complex (and perhaps boring) the action has been over the last few weeks.  Look at all of the zigzags and double zigzags in this tight range!  It has been the choppy 3-wave moves lower followed by the 3-wave rallies nearly retracing all the preceding swings that make the action look so bullish.

If the triangle option is correct, wave [e] may not be complete.  There can be a sideways correction in [e] forming (or another wave within a sideways pattern underway), but this is a low probability possibility.

Additional:

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