Reminder of the Larger Picture

The information below reviews why I think a wave downward is due soon, as part of a fourth wave in the Dow Jones Industrial Average. Such a downward wave would likely not end the bull market. This post recaps the information presented in the year-end YouTube video, but I want to again provide the scenario in writing, so that it can be referred to by link, and without have to re-explain it - as people get lost with all the different charts on the different sites.

As I stated in the year-end video, the biggest thing the stock market has going for it is that the NYSE Advance / Decline line is, as of Friday, at new all time highs, chart below.

NYSE $NYAD Adv-Dec At New All Time Highs

If this is the biggest thing the market has going for it, it is also the biggest reason NOT to call Primary 5 as being over yet. Robert Prechter insinuated in a newsletter a couple of months ago that he was wondering if it 'might' be over. Well, as far as I know, there is no bear market that has started with the $NYAD not diverging from price, and right now it does not. The $NYAD is at new all time highs right along with the Dow and the S&P. With that in mind refer to the chart below for the larger picture.

DJIA Daily Closes with RSI (14)

Assuming the Primary 4th wave (Circle 4) ended in February, 2016, as I called for, then there are potentially several ways to count the up wave, but I think several factors rule out the numerous possibilities and narrow it down to one. So, let's get to work.

If we are making a Primary 5th wave up, (Circle 5), then it should be composed of five Intermediate sized waves, labeled (1) through (5) on the chart above. With the $NYAD at all time highs, I do not think we are anywhere close to the fifth wave, (5), yet. In fact, I think we are only in the Intermediate (1) one wave up.

Most market analysts agree there was a peak in April, 2016, and a trough in May 2016. They have labeled these as 1 and 2. I disagree. I have labeled them as A & B, because if they were labeled 1 & 2, then the November, 2016 election low would "cut off" a trend line from Primary 4 (Circle 4) to their 2 wave label, violating a guideline that no part of wave 3 should fall below that trend line. Further, the B wave only retraced 38.2%, which is less common for a second wave. Not impossible, but less common. You see a 38.2% retrace for a second wave most often occurs when the first wave is the extended wave in the sequence. Clearly, if the April, 2016 high was wave 1, it is not the extended wave in the sequence since there is a much larger wave after it.

Rather, it's my opinion we are in an impulsive C wave up of Intermediate (1) of a likely ending contracting diagonal for Primary 5. The RSI (14) clearly tells us we have seen a third wave of some degree, but now price is diverging from it, and the Elliott Wave Oscillator is too, as I showed yesterday.

If we draw a potential channel around the C wave impulse, we see that wave ((iv)) or circle-iv has not yet touched the lower trend channel boundary. Price has fallen below the mid-channel line once, and has rebounded to it, but it has not yet attacked the lower channel boundary. Further, we noted that, in the Dow, C = 1.618 x A would be at 21,374 or thereabouts. So, there is still room to go to make that measurement. But I think one of the key reasons to label this upward wave a Minor C wave is that it has the common characteristic of a C wave - which is a lack of significant-sized pull-backs. Whether a crashing "take no prisoners" C wave to the downside, or a more rare C wave to the upside, they would still have the similar characteristic of not taking big pull-backs. Isn't that what we are seeing?

I have seen in re-drawing this structure with all of the intervening wave labels that I made a mistake on some blog posts in the labeling of the upward (b) wave, and the downward (c) wave, and wave ((iv)) or circle-iv. I had previously referred to this fourth wave as minor 4. It clearly can be seen that the correct degree of this wave would be minute ((iv)), and upward (b) wave is minuet (b), not minute ((b)). This was a mistake only - not a change in market view of any type - and the wave labels from the above chart will stand, and future charts will show the correct degree.

If after minute ((iv)) or circle-iv completes, we get the minute fifth wave ((v)) to complete Minor C of Intermediate wave (1), up, it is at that point, we should begin roller-coaster ride inherent in a diagonal that would cause the advance-decline line to diverge. In this scenario, there are four more waves for this to occur, in Intermediate (2) through (5). In many other Elliott Wave scenarios, there is only one more wave for this divergence to occur in. That seems unrealistic to me.

But keep in mind, that if a diagonal wave should be made, that price does not have to make explosive new highs. It only has to make marginal new highs. And that is the key to this count.

So, what about this closer in and potential minuet (c) wave down of minute ((iv)) or circle-iv? How could that happen? Well, is it possible that price will sell down into the upcoming Federal Reserve rate decision meeting, and then, when either the Fed does or does not raise rates the market will have a relief rally - either because the rate hike is over with, or because they do not raise rates? And then make a new high? It's just a thought. It doesn't have to happen that way. But, it is at least plausible since we have just seen new all time highs for this rally.

Anyway, you again have a recap of a scenario I have in mind for the larger Primary Wave 5. Since the S&P500 definitely did not make a triangle for it's Primary Wave 4 (we clearly demonstrated in the SP500 the count downward was a double zigzag W-X-Y), then it is possible the largest Primary 5 wave in history - potentially ending a Cycle and and a SuperCycle will end as a contracting diagonal. We don't know for sure.

But, in any case Primary 5 does not look to be over yet.

Have a great weekend, and thanks for following our thoughts.
TraderJoe