S&P500 and Dow ~ the rally based on "hope" continues the bull trap...


This week we watched the stock market as it continued to grind higher with only small pullbacks. The rally is being referred to as the hated rally by traders but, Wall Street has given it a new name "The Rally of Hope."

While we don't have anyway of knowing when the virus will go away or when the economy will recover...we can use the charts and the Elliott Wave to show us what is likely to happen next.

With each three waves up or down or five waves up or down the formation fits together like a puzzle that will eventually form one of Elliott's corrective wave patterns.

This week it has become clear that the markets are tracing out "double or triple" zigzag corrective waves. This means we have eliminated nine out of the eleven possibilities.



The decline that happened two days ago looks like a small wave (c). The rally from that little low was five waves shown on the chart. This means that the uptrend is still unfolding.

Now, what happens next will tell us if this bear market correction from the March low is forming the double or triple zigzag pattern. If a larger five wave impulse pattern continues from yesterday's low it will be wave [y] of 2 for a double zig-zag labeled as w-x-y.

However, if the rally from today unfolds as just three waves it will confirm the third (a)(b)(c) to form the triple zigzag...labeled as w-x-y-x-z on the white chart above.


This chart of the Dow helps to confirm the wave labels because the fives and threes are all in the right place giving us no other way to label than what's shown.

The alternate scenario here would be if price fails to rally and instead breaks down below yesterday's low. This would signal that a double zig-zag wave 2 was complete at this week's high shown in the last update.

The market psychology behind this is that the double and triple zigzag happens when the market needs more time and needs to stall.
This happens because the bullish sentiment isn't quite as high as it needs to be for the next wave down.

One zigzag if it sucks all the bulls in...if not, then two zigzags for more time...if still not enough bulls then three zigzags always does the trick.

The good news is there can only be three zigzags...Elliott never identified a quadruple or quintriple zigzag!


We may do a video over the weekend or Monday and explain how we use Fibonacci and wave relationships to help confirm the wave formation.

The market should create an important turn next week so stay tuned!

Follow the Trend
and
"Trade Safe"

Comments

  1. NicolasApril 26, 2020 at 5:23 AM

    Hello Harlan,

    First of all thank you very much for your blog and the quality of your analyzes, being myself a fervent practitioner of the elliott method. I allow myself 2 questions on the last counts you did :

    1/ Why did you abandon the long term triangle ABCDE (with the E ending around 2200 sp, so E = 3400 - 2200)? Is this a count which has been invalidated by the elliotist rules?

    2/ You said that 9 of 11 scenario of the current rise have been eliminated, could you provide us more details? Can we not count it as an impulsive wave, being currently in wave (5) of ((1))? This would mean that the decline is over and that we are starting a new long term bullish cycle. It's not my prefered scenario, but i am trying to consider all the possibilities.

    Thanks a lot in advance.
    Regards

    ReplyDelete
  2. HarlanApril 27, 2020 at 10:58 AM

    Hey Nicolas...thanks much for the great questions! The full answer to both of your questions will be quite lengthy. So, I may include this in the next post or I had already planned this on the youtube video channel you can subscribe to.

    Briefly for now, 1/ we haven't abandoned the long term "expanding triangle" scenario...just moved it to an alternate and not primary count because of numerous things that occurred technically and fundamentally at the A-T-H. However, the count that has changed is that since the decline traced out an impulse five waves, instead of three, then it becomes a large "expanding" flat wave-C of (4) and not the "expanded triangle" which would have needed three waves instead for E.

    2/ of the corrective waves and derivatives of those corrective formations...we have eliminated all of them down to only the "double or triple" zigzag which is what we are currently tracking. The initial rally from the low counts best as three waves ...five waves up with a small (b) wave and then an "ending diagonal" for wave (c) of [w]. This pattern is corrective and because of this no matter what else happens since then it will be part of the larger wave 2 correction. Just for a couple of things to monitor...if you look at other indices...Gdow...Wilshire 5000 and a few others you can see the double and triple scenario cleaner all because after the initial rally and then the first wave [b]....notice that the small wave-i and wave-ii up from [b] in the Dow and SP...doesn't take place in some of the larger indices mentioned. The rally up from [b] is clearly another three waves.
    Volume among many other things we will cover was very heavy going down for wave 1. The wave 2 volume is very weak and declining as price struggles to rise....typical for an impulse wave 1 and 2 reversal of trend. If volume would have tapered off going down and now volume was rising, even slightly, it would confirm the opposite scenario. If volume starts to pick up again in the initial decline from the wave 2 peak it will validate and confirm the beginning of wave 3 down

    The never seen historical moves in price and the global pandemic aren't happening just by chance...it corresponds with a "super cycle" and "grand super cycle" top...in our opinion!

    We will go into more detail shortly....stay tuned and thanks again!!!!

    ReplyDelete
  3. NicolasApril 28, 2020 at 6:45 AM

    Helle Harlan,

    Thanks a lot for your prompt response. I already subscribed on YouTube video channel :)

    Keep in touch, we are near the top, perhaps we just have finished the (iii) of (c) of (y)

    ReplyDelete
  4. NicolasApril 30, 2020 at 4:00 AM

    Hi Harlan,

    We are near the top, i have several good signals of end of the rally (perhaps we need a final wave until 2972 sp). And yesterday night everyone was euphoric.

    I saw your work on gold, very interesting! All the People including Elliott’s analyst are bullish (and they note the current move from 1050$ as a first impulsive wave).

    See you soon and take care

    ReplyDelete
    Replies
    1. HarlanApril 30, 2020 at 5:37 PM

      Hey Nicolas,

      Yesterday's high was a perfect target for a double retracement. If a triple is working then we still need a little more work.

      Gold is getting a boost from Corona so the (C) of [B] is still working. It's all about 5's and 3's and where they are...IF the decline from 2011 was five as our chart shows the we will see another big deflationary decline before the next bull in gold.

      Thanks much and safe trading...:)

      Delete

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