Did The Bull Market Just End??

So, it can't be denied that the people I first learned anything about Elliott Wave Counting from, Robert Prechter and the folks over at Elliott Wave International, are publishing a count, below, in the Dow Jones Industrial Average which has an awful lot going for it. Since they taught me the most about counting waves, it would be almost criminal not to bring you their ideas, supplemented with a couple of my own.

Here is their overall count.

DJIA Three-Day Chart of Intermediate (5) with count as per suggestion of Elliott Wave International

To which, I will add my own thoughts that I have counted out for you in near real time the possibility of an Ending Expanding Diagonal in the Hourly DJIA and, now, with yesterday's move over 2499, the S&P500 Index, as well. The count from Minor 4 is on the chart below.

DJIA Daily - Count from Minor 4

To be fair, these counts have an awful lot going for them. Here are a Fibonacci-five important wave characteristics noted. 1) The high of the RSI-14 would be on Minor wave 3, and there is a divergence to Minor 5. 2) The lengths of the waves and lack of overlaps work out properly in this context, and in particular wave 5 is nearing the length of Wave 1, and within wave 5, minute wave ((v)) is approaching the length of minute wave ((i)). 3) You can see even just visually that within Minor 3, then minute ((iv)) is a smaller wave in point size than minute ((ii), and you can see the same is true within Minor 5. 4) Although the overall wave does not channel particularly well, there is no escaping the fact that Minor 5 channels beautifully. 5) There are two potential ending diagonals at two different degrees of trend : the hourly has the expanding diagonal shown in red, above, and the five-minute has the contracting diagonal shown in yesterday's post.

From a time perspective, Prechter has done studies showing that an end to the bull market in 2017 would provide a neat cycle top on several degrees of trend. We do find that timing work, at this point in time, quite compelling.

We want to be quite clear that we picked a pretty big bone with EWI when they did not recognize the Primary Vth wave as we did - because the DOW still hadn't channeled yet, on a time scale from 1982 which it has now.

But, there can be no doubt. Five waves up can indeed be counted. Sentiment is running hot as I have shown in previous posts.

So, besides the overall wave not channeling well, here are a Fibonacci three points detracting from this count. 1) the NYSE advance-decline line has recently made new highs; that is usually a sign a bull market is continuing, 2) while you can find alternation between the wave two's and four's, it is not as obvious in shape as it might be. Minor 2 has quite a high B wave, and Minor 4 has a much lower B wave. But, it is true in both of the cases of the fourth waves  that they are shorter in time than their second waves. That would be an odd curiosity, but it doesn't break any rules. It is actually possible to consider that as a valid form of alternation. And, finally, 3) the market has again just made new daily highs, without showing significant weakness.

The major issue I see is that if the current channel breaks down, or if what people propose as wave fours become longer in points than their companion wave two's, then the above count may be dead on the money.

Another minor irritant would be that the waves don't exactly follow The Eight Fold Path Method, but for the very last wave in the sequence - this high up in the order of waves - maybe it is actually indicative of the character of Primary V - to drag everyone into the long side of the market almost without respite or recourse, and not make the 38.2% retracements expected in the fourth waves.

For now, one can only speculate. The key point is I was indeed expecting five-waves up from the February 2016 low, and they may have now occurred. I do not want to ignore the possibility that it may be happening in front of our eyes, especially when diagonals have just been properly counted.

I know that a lot of you will also point to some particular index and point to problems with it. I do understand. Yet, Elliott's work was based on that average of the thirty stocks, and again I just ask that you consider that other averages and the leverage in the futures may be introducing complications due to the number of stocks in the index, the weighting of various sectors and / or the inclusion of derivative products.

So, remain flexible, as I currently am. As an experienced wave counter, I can see this possibility clearly, but I can also see a longer third wave scenario. And I would present that one if, and when, it becomes just a bit more clear - like if the current diagonals do not work out for some reason.

For now, have a very good weekend!
TraderJoe

Supplemental: I am adding this ES futures daily count to show that - counted in this fashion - there are no issues with overlaps or waves which are not the correct size.

ES Futures Daily Count - Can Agree with Dow Jones Count

Wave (iii) is longer than wave (i), and there are no overlaps of wave (iv) with any part of wave (i) or wave (ii). In this count all of wave (iii) is above a line from wave 4 to wave (ii). And, within wave (iii), there are no issues with the overlap of wave iv triangle with waves i or ii. Wave .i is the single first candle up, from wave (ii), and wave .ii is the 50% retrace of that candle shown as the wick. That also means there are no problems with overlap by wave .iv triangle.