The decline to Feb, 11 low at an intraday SPX price of 1810 and a closing SPX price of 1829 from the all time high of 2135 from the May 18-July 20 double top at 2135 and 2128 respectively was more appropriate in time and extent for a Primary degree down wave than the decline to the 1867 low or even the 1872 low were. A broad A-B-C pattern was etched out by the Primary 4 down wave. The A leg divided into an a-b-c starting from the July 20, 2015 top at 2128 and ending at the Aug 25 low of 1867. The b wave starting from 1867 divided into a 1-2-3 topping at 2021 on Sept 16, 2015 with the c-wave ending at the Oct 29 low of 1872 in a single wave decline,creating a double bottom.
From there a strong B-wave rally took the SPX to an eventual peak at 2081 on Dec 29, 2015. The double top pattern created by the Nov 3, 2015 and Dec 1,2015 highs of 2116 and 2104 respectively were the absolute highs of the rally. That could have been called a 5-wave rally with the 4th wave dividing into an a-b-c and the 5th wave peak at 2081 failing on Dec 29, 2015 to even match the Dec 1 high. From the Dec 29, 2015 peak of 2081 the C wave fell to 1810 (intraday) on Feb 11, 2016. The a wave hit it's low at 1812 on Jan 20; the b-wave peaked at 1947 on Jan 29; and the c-wave probably ended on Feb 11 at 1810. The large A-B-C pattern consists of the Major waves of Primary 4. The anomaly in this wave pattern is the 5-leg B wave which ended in the "failed fifth" wave on Dec 29, 2015. According to Elliott Wave theory, a corrective upwave is supposed to take a 3-wave form. But at the time it was happening, it was believed by many of us to be Major 5 of Primary 5. For the market to maintain that deception it had to deviate from the orthodox pattern, only appearing as a corrective B wave (to me) in retrospect.
The up days in the bottom forming action in the week of Jan. 18-22 featured a couple of days with the A-D line above +2000, one of which was a +2400+ day. This was a harbinger of further strength in the Fri, Jan.29 rally to come. The Friday, Feb 11 rally was not as strong as the Friday, Jan. 29 surge which at the time I thought was the beginning of Primary 5, but if there is follow through, it will prove more sustainable. Then Feb 11, 2016 would mark the low of Primary 4.
It is true that the DJIA closed 6 points below it's August lows while the DJ Transports have long since fallen below their Aug lows. So there is plenty of justification for calling today's action a Dow Theory sell signal. However, recently the Transports have strengthened and today they closed 200 points above their Jan 20 lows. Picking the appropriate points to compare is a kind of art whether it is the Dow Theory or any other set of indicators that are used in conjunction. I think I am on firm ground in saying that there was a short-term DT non-confirmation to the downside by the DJ Transports. The downside penetration by the Industrials was very marginal as well. However, strict Dow Theory rules state that any closing price above or below a previous level, no matter how small, counts as a penetration. In my opinion, the Dow Theory Transport (Rails) and Industrial confirmations or non-confirmations are the original ancestor of all the myriad index and indicator divergences and confirmations that are used today.
The Dow Theory is based on closing prices, The DJIA fell below it’s Oct, 2014 lows in Aug, 2015. The DJTA did not fall below it’s Oct 2014 lows on a closing basis in Aug, 2015. That is the reason why there was no Dow Theory bear market signal, not because of the flash crash. Subsequent to the Aug 2015 decline, the DJIA rose to new highs. The DJTA failed by a wide margin to do so. On Dec 18, 2015 the DJTA fell below it’s Aug, 2015 low but the DJIA did not do so by a wide margin.
There were declines prior to Aug, 2015 that some Dow Theory practitioners may have used as reference points and thus generated a bear market signal. But I consider the Oct, 2014 lows to be the correct ones to look at for comparison. From what I have read, I would say that most Dow Theorists interpret the price action from Oct 14, 2014 to mean that the Dow Theory has signaled a bear market. But obviously I have an interpretation contrary to that.
http://stockcharts.com/freecharts/gallery.html?$NYAD
http://stockcharts.com/h-sc/ui?s=%24NYSI
The severe decline in the NASDAQ and in secondary stocks served to revalue growth stocks and generate some sector rotation, possibly in preparation for finding new leadership in the next, and perhaps last phase of this bull market. The NASDAQ daily A-D line fell even further below it's previous low than the NYSE A-D line. Subsequently the NASDAQ McClellan Oscillator rose from a low of -86 to +58.6, and then fell to a higher low at -33, and has currently risen to the 0 level.The NASDAQ Summation index looks to be making a double bottom in the 4292-4313 area. Of course, to kick the NASDAQ Summation Index into an uptrend, the NASDAQ McClellan Oscillator needs to move above 50 and then stay above 0 on any declines.
http://stockcharts.com/freecharts/gallery.html?$NAAD
http://stockcharts.com/freecharts/gallery.html?$NAMO
http://stockcharts.com/freecharts/gallery.html?$NASIT
If both of these Summation indexes can generate durable uptrends, that would be strong evidence that the bull market has resumed rather than just a counter-trend rally developing in a bear market .
From a psychological point of view, I would say that the market has been trying to convince it's players that any forthcoming rally is only corrective in nature, not a resumption of the primary bull. Most of the so-called bullish forecasts I read are only anticipating a counter-trend rally to the upside within a primary bear market. The bull needed to throw off some of the people who were riding it, especially on credit, with too much of a sense of equanimity. Although there some who agree with my position that Primary Wave 4 ended on Feb 11 at 1810 (intraday) or will end soon in this same price area, I think there is a great deal of fear that this is a bear market and it will resume it's destructive path downward after the upward reaction burns itself out. I feel quite a bit of fear myself and am not overconfident about this position that I've taken.
