Low Volatility

We begin this update as usual by discussing the possible wave counts beginning with the long-term options while working towards the short-term options.  Since the 2009 low a developing impulse wave or zigzag wave are most likely.  If the former is correct, a pullback should stop at resistance in the mid 1500s or higher, then the rally will resume.  If the 1500s are broken, the latter should prove to be correct where a sideways correction since the 1999/2000 high is still underway.

It is extremely likely that an impulse wave is underway beginning at the wave [2] low.  As discussed repeatedly here there are many wave options higher, but the 2013 [iv] to (3) region is best utilized as described above.  This statement remains true from last time: "Only the wave count in color stands out from the pack. ...Still, it is important to watch for several patterns, ordered by importance.  First, a sideways corrective wave lower from 2014 [iii] where 'b', underway since [iv], is either a single or double zigzag.  Second, an impulse wave higher since 2014 [iv].  Third, a creative use of the waves higher since 2013 [iv] for one or more 5th waves that follow the structure of the remaining weak impulsive options."

Following 1 of (5), there are several possibilities work noting.  First, the wave count in color breaks the April-May congestion period down into two 1st and 2nd waves.  Within this impulse wave higher since (4), the 3rd wave works by far the best as described by 3 (better than this 3rd wave's 4th wave incomplete as a very large wave).  The 4th wave is most likely complete at 4, but it important to consider the possibility of an incomplete wave that is likely a triangle with its 'c' wave underway.  The size of a sideways correction would likely terminate as a very large wave relative to wave 2 which is one main reason why it seems unlikely.  If wave 5 is underway, it should be an ending diagonal.

Following the wave (4) low, a 2nd wave following 1st wave 1 can be at [ii].  Then there is a 3rd wave to [iii] followed by a sideways 4th wave correction still incomplete.  The large size of a correction underway relative to 1 to [ii] brings this possibility also into question.

A zigzag-family wave higher since (4) is hardly worth considering because of the required structure and very limited use in the larger picture (only used if there is a sideways correction since 2013 [iii] underway or an ending diagonal with 1st wave underway since (4)).  But if correct, the wave count implies that there is a top of some degree at [i] with impulse wave lower to [ii].  Structurally, wave 'c' of the zigzag option is an ending diagonal since [ii].  A zigzag wave [v] of 3 is hard to imagine.

The options above that are not presented in color all suggest that the selling following [i] is incomplete as a zigzag-family or impulse wave.  But this seems unlikely given that the rebound following [ii] looks incomplete.  A double zigzag with 'w' to 1971, 'x' to 1965 was in the running until the 1973 high was taken out by a small additional wave to 1974; this "extra" wave suggests there is more than one complete impulse since today's 1966 afternoon low.  It is now very difficult to view a complete or incomplete upward correction since [ii], even when considering unusual patterns like a triple zigzag or significantly structurally unsound patterns.

The move down following the wave [i] high also look much more like a '3' than a '5'.  It works as a single or double zigzag, but both of these likely limit continued selling to the wave 4 low because moves tend to be symmetric.  A zigzag-family pattern also obviously takes any significant top at [i] out of the running.

Wave [i] looks significantly more like a zigzag-family pattern than an impulse wave.

Final Analysis:

The past two updates emphasized the very bullish short-term condition of the market where all-time highs were expected.  Last time it was stated, "the very bullish outlook remains in the hours and days ahead due to the fact that it is difficult to view the rally from 4 to (iii) as a complete wave of any kind.  There will probably be a new all-time high tomorrow with Dow 17000 after the jobs report is released."  This is exactly what played out.  This time, with inspection of all the possibilities, ...

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Up, Up, Up, ...

The market blew through the 1975.65 level yesterday which invalidated the ending diagonal possibilities originating from the 2013 wave 4 and [ii] lows.  The ending diagonal beginning at the 2014 wave [iv] low is incredibly weak due to the fact that wave (5) is longer than wave [v] and wedging will probably be lost with overlap into wave (4) territory.  The elimination of the ending diagonal possibilities does not mean a zigzag higher is not underway since the 2009 low; a zigzag can still be underway.  This is accomplished through wave 'a' to i, wave 'b' to [2] or (2) (flat or triangle, respectively), and wave 'c' underway.  Flat wave 'b' is strongest due to the lack of symmetry found in any impulse wave higher since wave (2) that has not yet completed.

There are a variety of impulsive options throughout wave [3].  Only the wave count in color stands out from the pack because as discussed in prior writings, the remainder have a bad structural component that the count in color does not have (primarily an impulse wave with poor structure, mainly in the wave 5 area), and/or there is a symmetry problem (stretched 5th wave after 2014 [iv]) that the count in color does not have.  Still, it is important to watch for several patterns, ordered by importance.  First, a sideways corrective wave lower from 2014 [iii] where 'b', underway since [iv], is either a single or double zigzag.  Second, an impulse wave higher since 2014 [iv].  Third, a creative use of the waves higher since 2013 [iv] for one or more 5th waves that follow the structure of the remaining weak impulsive options.

In the medium-term, there can be a zigzag family-wave or impulse higher unfolding.  The impulsive option in color above does not have the best proportionality between [ii] and [iv], 2, or 4 because of how large [ii] is (we care about 2 and 4 in relation to [ii] because subwave corrections are usually not larger than their parent wave's corrections).  A way around this is to view the action after [iii] as an incomplete corrective 4th wave and 1 to [ii] a 2nd wave.  This structure is no worse than the wave count in color, but the higher highs and pulling away from the prior impulse wave [iii] high is a signal that the market has moved on and is not still drawing out a correction.  Still, this is not a weak option and should be considered.

A sideways correction underway since 3 is also a possibility, although somewhat weaker than the one discussed that is underway since [iii].  It almost adds a new layer of confusion as wave 4 would then be larger than wave [iv] and 2.

A zigzag wave higher since (4) would makes it possible for a double zigzag to be underway beginning at the 2014 wave [iv] low, a better option than a zigzag since [iv].  This is because wave (4) is then not used as a flat which is not the best use of the waves as discussed here before.  But keep in mind that the possibility for a sideways correction underway since 2014 [iii] is weak due to the major height above [iii] and the inability to fit the pattern into the larger context without some poor use of the waves that the wave count in color does not do.

If there is a zigzag underway since (4), it is far best having its wave 'a' to 1, 'b' to [ii], and an ending diagonal wave 'c' underway since [ii].  The trouble with turning the subwaves of [v] into 3 waves is the poor proportionality that must be introduced into a wave the counts naturally as an impulse.  Wave [iii] is also better an an impulse wave, not a corrective wave.

The short-term suggests any wave, impulse or corrective, is incomplete since 4.  There are 5 wave higher, but (i) is shorter than wave (iii) and 4 to (iii) of [i] or 4 to [i] of (v).  A triple zigzag is possible, but it is rare in occurrence, (i) works most naturally as an impulse rather than a zigzag then sideways pattern to (ii), and the corrective waves within (iii) are small in relation to those within wave [i] and (i) (when searching for comparable 'b' waves within the three zigzag legs).  The action following (iii) is now wide, but within it, the waves do not have an impulsive look; there are 3 waves down into today's AM low, then a choppy, indecisive period.

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Note:

Due to the 1/2 trading day Thursday and market closure on Friday, the next wave update will be Wednesday 7/9.

A Show of Clarity

The short-term action has prompted some change to the wave count options since 2011.  A zigzag or impulse wave developing since the 2009 low is still most likely where an impulse wave higher is unfolding since the 2011 [2] or (2) lows, but within this wave an ending diagonal since the 2013-4 lows of 4, [ii] or [iv] are now weak possibilities.  This is because there is now a high likelihood of a new all-time high where the 1975.65 invalidation target will be reached.  The reasons for this are stated in a moment.

The incomplete impulse possibilities since 2013 [iv], from 4 to [iii], and since 2014 [iv] remain weak structures.  The wave count in color above does not use these components.  It does require wave (4) to be the flat which has problems, but there is not much choice anymore; even a sideways pattern underway since [iii] probably utilizes this flat.

From i to (2), a triangle works well due to the wave (1) and (2) structures that resemble 3 wave movements.  But besides the ending diagonal possibilities that were once strong, there are no good ways to describe an impulse higher since (2) that is incomplete; some weak structure mentioned in the previous paragraph must be used.

The structure of the decline since 3 had bearish potential until the (c) of [a/w] wave was heavily retraced.  The move on Friday to the origination of (c) in what is so far 3 waves gives an extremely bullish look to the decline.  [a/w] can be complete where an impulse wave higher is now unfolding, or [a/w] can be just the first leg of a larger correction (e.g. a double zigzag or flat).

Assuming there will be a new all-time high, the potential for a corrective wave higher, at least one where 1975.65 is not exceeded, is bleak.  The structure since (4) is now so far above the last high that a corrective 'b' or 'x' wave underway since (4) does not make a great deal of sense.  If there is a rise above 1975.65 the the structure higher since (4) does prove to be a correction, it may be best suited as a first wave of an ending diagonal.

The short-term action since [a/w] is not particularity clear.  It can be impulsive or corrective.  If corrective, this wave may or may not reach a new all-time high before a level under [a/w] is reached to conclude a corrective wave since 3.

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