An Important Day

The action on Friday proved to be important for determining a set of possibilities that suggest where the market is likely heading in the near term.  There is more to say in the shorter-term scales than last time.

But before going into these details, note that the long-term picture remains unchanged.  For a detailed look at the reasoning behind the following summary below, please refer to this update.

"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."

It should go without saying that the same options exist for the wave higher since 2009.  Namely a developing zigzag or impulse where the zigzag option has been weakening as price continues higher.

Last time it was reasoned that the downward sideways possibilities since 3 or [b] are weak because of their size and the structure since (4).  The rally that has unfolded from 4 to (5) can now be a zigzag which lets a sideways correction continue and perhaps terminate sooner than expected, but this offers little benefit to these options.  For example the quickest way of terminating an incomplete pattern would be a quick test of the 1950s for a flat down since [b] ([d] is not 5 waves so a correction cannot begin there).  Then the weak impulsive option in the chart above must be used.  A correction since [b] is then large relative to all other corrections since (4) and of course there are all the structural problems with this option; e.g. using [b] as a 5-wave move and [ii] to 3 as a 5-wave move.  These structural problems are eliminated if a sideways pattern is underway since 3, but then this pattern is clearly huge relative to any consolidation period since (4).

With a correction very likely ending at 4 and the structure likely unfolding as drawn above (the other option worth noting for action following (4) is the impulsive one in text in the chart above, but this is very weak), the most important thing to pay attention to is the action following 4.

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Trend is Intact, but for How Long?

The action since the last update does not change the long-term possibilities.  In this update the options for wave counts higher beginning at [2] were discussed in great detail.  A sideways corrective wave lower from 2014 [iii] is the next best possibility after the one above in color, but its 'b' wave is very large relative to 'a'.  An impulse higher unfolding since 2014 [iv] is weaker than the sideways pattern and the options involving 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 trail the field.

Since the 2009 low, a zigzag wave higher is possible, but this is growing weaker as price continues higher.  It will also not be until the 1500s are breached that there can be an improved chance given to this option.

In the medium-term, an impulse higher developing since (4) is still by far the most probable option.  The advance to a new all-time high this week brings to mind the possibility of an additional test of the 1940s/50s support, but this fits poorly into the larger picture.  Given that there essentially cannot be an impulse higher from [iv] to [b] (looking for an impulse from 2 to [b] so wave 2 can be paired with a 4th wave underway since [b]), allowing an "extra" 5th wave in the [b] position does not fit into the larger count ([b] looks very much like a 3-wave pattern), and the sideways consolidation period since 3 is already large in relation to the previous corrective corrective periods before it, the chances of a re-test of the 1940s or 1950s before the market continues higher is poor.

An additional reason why [v] and [b] are likely not 5th waves can be explained as follows.  Unless (a) to (c) of [ii] is a 1st and 2nd wave, or 2 to [b] is an impulse wave (following the weak impulse option above) the possibility makes no sense.  The former is very unlikely due to the structure of (a) to [ii] that nearly fully retraced (b), and if this is correct, the size of [b] to 4 is already larger than all corrections higher since (4).  The latter faces a similar problem where a correction beginning at [b] would likely grow to a size larger than [i] to [ii] when complete (but it already makes [a] and 2 look small), but remember also the structure of [ii] to 3 is very hard to imagine as an impulse wave.

To help solidify the view that there is not a corrective wave higher since [e], consider the chart above.  It is a struggle to imagine either a 3- or 5-wave pattern complete since [ii] or a single, double, or even triple zigzag complete since [e].  An ending diagonal underway since [ii] with '1' to (i), '2' to 1981, '3' to i, '4' to ii, and '5' underway is possible, but this would be an unusual pattern with (i) so impulsive-looking and large relative to the other motive legs.  Maybe there is a zigzag developing since [ii], but wave [i] strongly resembles an impulse where its corrective legs are smaller than some of those contained in post-[ii] waves.

The wave action higher since [ii] looks most like an impulse wave to (i) with at least one additional 1st wave following (like the wave count in color above), or a sideways corrective wave underway since (i).  Both possibilities share similar probabilities with perhaps the option for a corrective wave underway since (i) taking a slight edge.  Note that a structure like the one above in color does not suggest a 4th wave to be paired with [ii] is underway since (i), although it is possible weakly.  A 4th wave underway since (i) would likely look better in relation to [ii], but remember that wave (i) is shorter than [i] and it is typical for 3rd waves to be larger than 1st waves.

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Here is an additional thought of mine from Elliott Wave Analytics:

Yesterday Elliott Wave International put up a publicly accessible chart on their Facebook page expressing their view of short-term action while pushing their new U.S. Intraday Stocks Pro Service": https://www.facebook.com/ElliottWaveInternational/photos/a.10150108635386575.295053.81391766574/10152566181706575/?type=1&relevant_count=1.  This is the chart below:

While their call for a bottom at c is in line with action that followed, a few things struck me. First, wave 4 terminates in wave 1 territory which is a violation of the rules, therefore there cannot be an impulse down since b as described.  And if there is no impulse wave c, then the flat pattern they are suggesting is also not valid.

Second, even if there is a flat like they suggest (from [b] in my charts) there are the major structural problems that I highlighted and discussed deeply above; namely all the problems that go along with either [v] and [b] needing to each be 5th waves, or [iv] to [b] an impulse wave.  Actually this gives them the benefit of the doubt.  I suppose they could have a flat from 3 to [c] for wave a which would be much crazier.

The observations this "pro" service arrives at are quite disappointing.  End of the day, I am proud to put my name on my work because of the amount of thought I put into it.  This is behind the quality and high degree of predictability relative to other services that I and the others on this site strive for.  Thank you for being a member.

Still Rallying

As usual we being with an analysis of long-term picture and work our way into the smaller waves.  Since 2009 there is still the possibility of a zigzag-family wave unfolding, but the higher price travels the less likely this scenario becomes.  If a correction is unfolding a single zigzag is the preferred option where 'a' is to i, 'b' is to [2] as a flat, and 'c' is nearing completion.  Wave 'b' of the zigzag can terminate at (2) as a triangle, but as discussed in the past it is difficult to find a good impulse labeling higher since (2) where a sideways correction is not underway beginning at 2014 [iii].  A double zigzag would require a pullback of similar size to ii, then another rally putting price even higher as it completes this more complex pattern.

In this update the options for wave counts higher beginning at [2] were discussed in detail and the following was concluded:

"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."

The ensuing price action since the wave (4) low is very likely an impulse.  A double zigzag with 'w' to [iii] ('a' of 'w' to 1, 'b' of 'w' to [ii]), 'x' to [iv], and 'y' underway ('a' of 'y' to 3, 'b' of 'y' to '4') is possible, but the size of 'x' is small relative to the 'b' waves within the two zigzag legs and the pattern only works as an ending diagonal underway since the wave (4) low, a pattern not often seen.  Furthermore the large space between the April-May and June-July congestion areas that is [iii] is characteristic of an impulse wave, not a zigzag-family wave.

Last time it was stated, "1960-area support should prove to be the farthest that any selling travels (if there is still a wave 4 triangle underway...)."  Although this move appeared unlikely due to the short-term structure (especially after the morning drop and (x) of [e] wave), the structure of [d] not preferred as a double zigzag, and the fact that there was already a pleasing complete triangle structure to (x) of [d], price move to this level anyways and actually a bit under in a fear-like move.  The rebound was strong and the waves in the wave 4 region, particularity [d] and [e], look very corrective.  Unless 5 truncated as an extremely small 5 waves to [i] at the Friday high, the structure higher since (4) is not yet complete.

A correction in the wave 4 region can be incomplete, for example there can be a flat higher since [c] within a flat down since [b], but the region grows to a very large size relative to any correction that came before it since (4).  If a correction is still underway and if there is not to be a massive correction down still incomplete since [iii], there must be a impulsive subdivision as described above where 4 is underway since subdivided 3.  Clearly an extension of 4 only worsens the proportionality of it in relation to previous corrective waves.  Just one simple, quick move back down to 4 or [a] is very likely not enough to give a reasonable structure that is a different complete sideways correction.

The overlap of a of (y) and then total retracement of b of (y) give a very corrective look to wave [e].  5 wave higher since [e] that may be an impulse or just a set of 1-2 waves unfolded following the Thursday low.  A flat higher since [c] works with the structure seen over the past two weeks, but again the larger structure does not work well with it.

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