Saturday, March 5, 2016

Steady as She Goes

We indicated in our last blog post that because of the very low level of bullishness a significant rally could occur in U.S. equities. That it has: with continued higher highs and higher lows. The market through Friday continued stair-stepping higher. An intraday 15-minute chart of the S&P 500 Index shows this pattern very well.

SP500 15-minutes Stair-Stepping Higher

Note the continued higher highs (blue) and higher lows (brown) which are the hallmark of an uptrend. And a key question is, "what happens next?".  Unfortunately, this question is difficult to answer definitively in the short term. Friday's action was very whippy, with a higher opening, a short sell-off, a larger rally, and another sell-off, followed by a smaller rally. The mid-day sell-off had some impulsivity to it, but did no technical damage to the chart: there is - as of yet - no lower low.

Further, there is no damage to the longer term two-weekly chart, shown many times before in this blog, and shown again, below.

Price still remains within the two-weekly Elliott parallel trend channel, with even a higher high than last week. Now, one can argue "there are three-waves-up done and complete" from the January, 2016 low. But, that count makes an assumption, and that assumption is that all upward movement has ended. We don't know that it has, and assumptions can be dangerous. It is possible it has ended, and if it has, we will respect it. But, for us .. the market must make that case.

Further, if one looks at the two-weekly slow stochastic - shown in the bottom panel - then one can argue there is an "up" signal from this indicator because wave (Y) of Primary 4 made a lower low, while the slow stochastic did not, constituting a significant divergence on a large time scale. Further, the Elliott Wave Oscillator - in the middle panel - remains numerically well within the range for a Primary fourth wave.

So, yes, even though price is back to a prior resistance area on the chart, it is possible for a new all time high to be made, and for it to be the Primary 5th wave. We have never dismissed the possibility of a Primary 5th wave - as our regular readers well know. But the market will have to make that case, as well. Such a Primary 5th wave could extend well into 2017 to make a Fibonacci eight years for the bull market.

We continue to maintain that being open-minded, patient and very flexible at this point in time will have it's rewards when the true nature of the market structure becomes apparent. There continue to be a number of ways to count the wave structures - whether on the two-weekly chart, or on an hourly chart. There are so many possibilities right now that it would be confusing to delineate them. We are waiting for a count that clarifies the picture more than confuses it. When we see it, we will publish it.

A fourth wave horizontally would help clarify that further up movement is likely. A strong third wave down to new lower lows would help clarify that all up movement is over, and the Primary wave sequence was A,B,C, and not 1,2,3,4, but until then .. we observe and participate patiently.


  1. Replies
    1. Very welcome BH, and thanks for the continued support.

  2. Thanks Joe. I've been following since the beginning. Have always appreciated your analysis and insight.

  3. Hi TJ, I was a long time reader since study of cycle. Based on your charts, looks like the red 4 is very near the end, so can I expect the next red 5 will be lower than the red 3?