New Highs Imminent

On Saturday the long-term options were discussed in great detail here.  Nothing has changed in the long-term so there is nothing to add to the long-term analysis.

Following wave (4), there is very likely an impulse underway that is in its final stages.  The wave 4 triangle above works very nicely with recent action with one drawback; wave [e] did not retrace much of 3 and is a bit small.  The alternatives are weaker however.

If wave [d] completed at today's high and wave [e] is underway, there is a loss of symmetry in the triangle (wave [d] is then bigger in time than [c] and the upper line becomes more horizontal (it is already more horizontal than the [a]-[c] line)).  The small wave after [e] also does not work in naturally; [d] and (b) of [d] are larger than the wave from [e] to today's high and the pause in the wave from [e] to today's high, respectively (wave [d] would need to be a double zigzag).

If there is an ending diagonal underway since [a], a test of 1965 probably needs to occur but this seems complex and unlikely given today's action (discussed below).  The 1965 expectation is arrived at through the following thought process.  Any move higher to make a new all-time high (required for this pattern) should remain under 1994 or so so the 3rd wave of the ending diagonal remains shorter than the 1st wave.  However to arrive at an impulse of zigzag higher since [e] that has any chance of being paired with [d] (even though [d] best resembles a zigzag) before 1994 is reached becomes very difficult to imagine.  There is just not much room for an impulse or zigzag to unfold in this [e] to 1994 region given the action already seen.  An ending diagonal since [e] would be the best possibility.  An impulse wave down for a flat since [d] would wipe the upward progress since [e] away and the ending diagonal pattern would have an improved chance but still not a good one; the depth of [c] is still deeper than is typical for ending diagonals.

A final option worth considering on the above scale is an ending diagonal that began at [iv].  It can serve as the 5th wave of an impulse higher that began at (4).  This pattern does not have such a limiting upper bound as an ending diagonal since [a], but it seems just as unlikely.  [v] subdivides by far the best as an impulse wave due to the great difference in size of the 'a' and 'c' waves.  Wave [b] has a similar problem but is not quite as pronounced.  In addition the 'y' wave subdivision that is [a] adds complexity to the pattern.  The entire wave higher since [iv] is large compared to 1 which brings the entire structure into question.  But if this ending diagonal is the correct wave count, 1965 could be tested.

The waves within 4 can be used to build larger corrective patterns that have few structural problems, but then the pattern becomes huge relative to waves 2, [ii], and [iv] or even 1 to [ii] itself, not to mention very complex.

A closer view of recent action shows some interesting characteristics.  Following 3-wave [e], the market showed two legs higher followed by a deep and large pullback.  This immediately calls into question the possibility of an impulsive rise higher following [e].  But the advance after (ii) retraced nearly all of (ii) including the very small 1981.5 resistance area, the last before the day's high.  This rise moved the pattern back to the bullish side.

There can be a double zigzag higher from [c] to (ii), but again [ii] is smaller than (b) and [e] to (i) is smaller than [d] making the possibility questionable and not as desired as the one above in color.  Perhaps better is a flat lower developing from [d], but the rise following (ii) looks least like the 2nd wave of such a move.  A triple zigzag higher since [e] is possible where 'c' of 'z' is underway, but triple zigzags are rarely seen.

Considering the structure of the post-[e] waves where (ii) is larger than [ii] (typically corrective waves are no larger than the corrective waves of the next largest degree wave), there can be an ending diagonal underway since [e] where its 3rd wave or 'y' of is 1st wave is underway.  This pattern allows a test of a sub-1976 level such as support in the 1973 area.  If its 3rd wave is underway, the size of 5 will then fairly small relative to wave 1 so this pattern is not very desirable.

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The Short-term Uptrend Continues, but for How Long?

A decline in the market was seen Thursday, but this changes nothing in the longer term view.  The next several paragraphs before the next chart are a discussion about why the count in color stands out from the other possibilities.  Those who are already familiar with my reasoning can skip ahead to the discussion about the medium-term action.

When breaking down the possibilities, the wave 5 area is of most interest so we begin there.  Wave 5 works best as an impulse wave whereas 4 to [iii] does not work well; in order for 4 to [iii] to be an impulse, it must contain disproportionate 2nd and 4th waves.  But if this option is correct, it can be used to build a larger impulse from 2013 [iv] to (3) or [iv] to the present where an impulse higher since 2014 [iv] has not drawn out its 4th or 5th waves.  If the former is correct, there is likely an impulse higher since (2) complete when the impulse following (4) completes.  This implies there is a triangle from i to (2) or there will be another impulse wave higher following the one completing since (4).  If the latter is correct an impulse higher since 2 is just now likely nearing completion; it will complete when the impulse underway since (4) terminates.  Note that the core 3rd wave move of the 2011-present rally can be within the wave 5 region, but this looks like a poor option due to the waning momentum seen since late last year and the well-defined non-overlapping wave 3 move that works very well as a 3rd wave.

If wave 4 to (3) is still assumed to be an impulse wave but it is not a 3rd wave of a larger impulse, there can be an impulse wave underway since 2014 [iv] where its 4th and 5th waves have not yet been seen.  This can be wave '5' of an impulse higher since 2013 [iv] but there is not much symmetry to the pattern with the 2014 [iv] - present move growing so large.  That entire impulse move since 2013 [iv] is then also large relative to 2013 [i] if 2013 [iii] is assumed to be the 3rd wave of the move.  And if there is no impulse higher underway since 2012 [i], again we arrive at the undesirable 3rd wave core in the wave 5 region.

A better choice with an impulse wave in the 4 to (3) position is that wave being a 5th wave and the rally underway since 2014 [iv] a 5th wave.  Then we arrive at what is most naturally wave (1) the 1st wave paired with the 5th wave from [iv] - present and wave 1 the 1st wave paired with the 5th wave that is 4 to 2014 [iii].

A final option to consider if there is an impulse wave in the 4 to (3) position is a sideways correction underway since the 2014 [iii] high.  This implies price will reach the 1700s and an impulse unfolded from (2) to 2014 [iii].  This sideways correction is very large relative to (2), so an impulse like this since [2] is not that likely.

If there is a sideways correction underway since [iii], it is more likely a 4th wave paired with a 2nd wave [2].  This implies (2) to 2013 [i] is an impulse which has poor symmetry.  But all things considered, it has fewer structural problems than anything using a wave 4 to (3) impulse.  Assuming a (2) to 2013 [i] impulse, the sideways correction since [iii] is underway or there is a strange impulse wave higher since 2013 [ii] which would be a huge and complex 5th wave extension which seems unlikely.

This discussion of the longer-term options leads us to conclude the plausibility of the options.  First, a sideways corrective wave lower from 2014 [iii] is a reasonable possibility worth considering when used as a 4th wave that is paired with 2nd wave [2].  But the problem with this sideways correction is that price has rallied so far above [iii] with the 'b' wave being quite large relative to 'a'.  So it has been labeled "weak", but just barely given that the larger impulse structure it is a part of is not bad.

An impulse higher unfolding since 2014 [iv] is weaker than the sideways pattern due to its complexity and the structural concerns within the larger impulse higher since 2011.  This possibility is on-par with a pullback of similar size of (2) following (5)'s completion, then another impulse higher following; or a 2010-11 triangle with impulse higher completing at (5).

The poorest options involve an additional stretching of the impulse wave higher since 2011 where a 5th wave extension is taking place or the core of the impulse wave is in wave 5 territory.  These are the remaining options discusses above.

The wave count in color is strongest because the other possibilities have at least one undesired feature that it does not have.  It stands out by a good amount in this regard.

It is important to note that a triangle during the 2010-11 period only works if there is a 2013 [iv] to (3) impulse wave which is not the best use of that period.  So while the triangle pattern itself remains a good use of the waves, the prospect for an impulse wave underway since 2009 is looking better than a corrective wave during that period.  A flat from i to [2] is likely the 'b' wave if a zigzag wave is underway since 2009, but this flat wave can also be a 2nd wave of a larger impulse.

The potential for a zigzag or double zigzag higher are not strong options.  A double zigzag where 'w' is from (4) to [iii], 'y' from [iv] to [b] is complex by definition and has disproportionate 'b' waves.  It also does not fit into the larger picture unless there is an ending diagonal underway since (4) which is not a common pattern.

A zigzag with 'a' to 1, 'b' to [ii], and 'c' an complete ending diagonal has symmetrical problems.  Wave 'a' is very small relative to 'c' and wave [v] is difficult to view as an zigzag-family wave due to an identical lack of symmetry on a smaller scale.  This possibility does allow for a double zigzag higher since 2014 [iv] which can work with a sideways wave underway since [iii], so on a larger scale it does have merit.  But for the reasons discussed below, in the short-term there is not much chance of a top at [b] so a zigzag or double zigzag since (4) seems unlikely.

When looking at the chart above, because there are only weak corrective options possibilities higher and the "look" of the wave higher since (4) is impulsive (big 3rd wave with no overlap between the symmetric corrective periods that it is surrounded by), there is likely an impulse wave underway.  The one that looks best is the one illustrated in color.  Even though [ii] is large relative to [iv] and 2, a sideways wave underway since [iii] acting as a 4th wave that is paired with 2nd wave 1 to [ii] seems like more of a stretch.  Again we have to use [v] as an undesirable zigzag wave due to the fact that [b] subdivides into 5 waves only very poorly.  This then gives a double zigzag from [iv] to [b] for a flat or some other sideways correction since [iii].  A sideways correction like this seems very large relative to the 2nd wave correction from 1 to [ii] and the subwaves within the 4th wave since [iii] are not desirable.  So this impulse option is not a strong one.

Looking at the other impulsive wave count labeling in color we see the uses of waves [v] and [b] are more appropriate with the subwaves.  In addition wave 2 works best as a triple zigzag rather than a single zigzag that is required if 1 to [ii] is one sideways correction.  The ending diagonal possibility since [a] still works well with the structure, but it has changed to "weak" due to the fact that the retracement of [b] is so deep.  The 3rd wave of an ending diagonals are nearly always shorter than the 1st wave.  This guideline gives very little room for a required high above [b].  It is still very important to consider this possibility however because it is barely weak.  A triangle underway since 3 seems natural even though it is large relative to 2.  If the ending diagonal since [a] is correct, there are similar proportionality problems where [a] is small relative to 2, [ii], and [iv] and even [c].  So in the case of wave (5), we are just working the best with what we are given.  There will never be perfect proportionality and symmetry.

The wave down Thursday morning was something of a surprise given the structures of (a) and (b) that appeared more like zigzag-family and non-zigzag-family structures, respectively.  The move down is clearly an impulse, therefore the (a) wave is also a an impulse where (b) is a zigzag-family correction.  The wave (a) advance followed by the current testing of the (a) wave high suggests that the [c] move down is a zigzag, not a developing impulse ((b) is very likely 3 waves down so the advance after (b) is likely a leg that is seeking proportionality with (a).  Even getting to the wave (a) high or just above it with give a massive retracement of (c) which is not typical of a 2nd wave retracement.).  Getting to (b) will solidify this view.  A double zigzag down developing since [b] is possible if [iii] is underway as a sideways correction but for the reasons mentioned above, this is not a likely scenario.  [c] is probably a short-term bottom.

The final analysis summary is available at http://ewaveanalytics.com

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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