Upwards movement continues, which fits the larger picture of the main Elliott wave count.
Summary: Price has broken out upwards from a flag pattern. A target using the measured rule is 2,323 and an Elliott wave target is 2,382. Classic analysis today is very bullish. This market may not see a pullback yet until targets are met.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
MAIN ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Cycle wave V is an incomplete structure. Within cycle wave V, primary wave 3 may be relatively close to completion.
When primary wave 3 is complete, then the following correction for primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 2 was a flat correction lasting 47 days (not a Fibonacci number). Primary wave 4 may be expected to most likely be a zigzag, but it may also be a triangle if its structure exhibits alternation. If it is a zigzag, it may be more brief than primary wave 2, so a Fibonacci 21 sessions may be the initial expectation. If it is a triangle, then it may be a Fibonacci 34 or 55 sessions.
DAILY CHART
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It is possible that intermediate wave (4) is a complete combination: zigzag – X – flat. It would have been even in duration with intermediate wave (3), both lasting 26 days.
Intermediate wave (3) is shorter than intermediate wave (1). One of the core Elliott wave rules states a third wave may never be the shortest wave, so this limits intermediate wave (5) to no longer than equality in length with intermediate wave (3) at 2,450.76.
Within intermediate wave (5), no second wave correction may move beyond its start below 2,257.02.
The proportion here between intermediate waves (2) and (4) is acceptable. There is alternation. Both are labelled W-X-Y, but double zigzags are quite different structures to double combinations.
HOURLY CHART
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Intermediate wave (5) must subdivide as a five wave structure, either an impulse or an ending diagonal. At this stage, it is not possible to eliminate either option.
A best fit channel is drawn about upwards movement. When this channel is clearly breached by downwards (not sideways) movement, that may be the start of minor wave 2. At that stage, a Fibonacci retracement should be drawn along the length of minor wave 1 and the 0.382 and 0.618 Fibonacci ratios would be the targets.
Minor wave 2 may be relatively brief and shallow. Minor wave 2 within intermediate wave (3) lasted only 4 hours and was shallow at only 0.34 of minor wave 1. Look out for this possibility here within intermediate wave (5), especially as intermediate wave (5) needs to be shorter in length than intermediate wave (3).
Members wishing to find an entry point to hold a long position may look for relatively quick shallow corrections to join the trend, and exercise patience.
As always, use a stop. If a mental stop is used, then apply discipline and watch the position carefully. Invest no more than 1-5% of equity on any one trade. Less experienced members invest only 1-3% of equity on any one trade.
Stops may be set at the lower edge of today’s gap, or at the invalidation point. Adjust position size until the rule regarding % of equity is met. Be aware of greed: do not let it make your trading decisions. Accept and understand the possibility of losses.
Expect price to keep going upwards towards targets while price remains within the channel.
Intermediate wave (5) has a limit of equality in length with intermediate wave (3), so that intermediate wave (3) is not the shortest wave and the core rule is met.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A very small range inside week completes a small green doji candlestick. Price is consolidating.
A decline in volume last week supports the idea that price is consolidating. This supports the main Elliott wave count that sees a correction unfolding for intermediate wave (4).
On Balance Volume last week has come down to the long held yellow support line. This line goes back to September 2015 and it has been tested four times so far. This would be the fifth test. This line has good technical significance. It looks like OBV may be breaking below this line, but there is a little leeway in exactly how this line is drawn, so a clearer break is required before it may be read as a bearish signal.
A break below the long yellow support line by OBV would be a good bearish signal supporting the main Elliott wave count.
RSI is not extreme. There is room for the upwards trend to continue.
ADX is still increasing and is above 15 indicating the market may be in the early stages of an upwards trend.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
A bull flag pattern has completed and an upwards breakout closed above prior resistance. The flag pole is short, only 48.48 points, so a target using the measured rule would be about 2,323.
Today’s upwards day comes with a further increase in volume to support the rise in price. Volume today is highest since the 16th of December, so this increase is significant. The rise in price is supported by volume.
The breakaway gap may now offer support. If any members hold long positions, this may be used to pull up stops. Or if entering a long position, the lower edge of the gap may provide a good point for a stop.
The next strong resistance may be the next round number pivot about 2,300.
ADX today is increasing from yesterday and it is above 15. An upwards trend is indicated, which is not extreme, so there is room for this trend to continue for a reasonable distance.
ATR is now increasing. This new upwards trend looks healthy and strong.
On Balance Volume gives a bullish signal today with a break above the purple line. This is a strong signal because the line is almost horizontal, repeatedly tested, and long held. This signal adds confidence to targets.
There is still strong and long held divergence between price and RSI at today’s new high. This may disappear, but it does offer some support to the Elliott wave count which sees this upwards wave as a fifth wave. Fifth waves very commonly exhibit divergence as they end.
RSI is not yet overbought, so there is room still for price to rise further.
There is strong and long held divergence between price and Stochastics.
MACD may be about to give a bullish crossover.
Bollinger Bands today began to expand. Volatility may be returning to the market after the breakout. There is plenty of room for volatility to increase further.
Price closed above the upper edge of Bollinger Bands today, but this does not necessarily mean that price must move lower tomorrow. The last upwards trend saw price close above the upper range of Bollinger Bands for three days in a row, but the end of that trend was still not seen for a following three days. Price can sit at the extreme of Bollinger Bands for several days when a trend is strong.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. It appears so far that divergence between inverted VIX and price is mostly working to indicate short term movements spanning one or two days. While this seems to be working more often than not, it is not always working. As with everything in technical analysis, there is nothing that is certain. This is an exercise in probability.
There is no new divergence between price and inverted VIX at today’s new high.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
No new divergence at today’s new high is noted between price and the AD line. Upwards movement today has support from rising market breadth.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq have made new all time highs in December of 2016. This confirms a bull market continues.
This analysis is published @ 09:32 p.m. EST.
There does seem to be a unanimous opinion we are back on riding the bull. Lara can you provide an alternate tonight. The vix is groveling along the ground and there is always that possibility this move up is just a mirage. Not saying it is, just want to know what if.
It’s possible today that minor 2 could continue lower for another one to three days. But that really does look unlikely.
Here is a very bearish alternate idea for you, I’ve used a variation of this wave count back in December and published it yesterday in comments. I won’t publish it in the main analysis because there is almost no support from classic technical analysis, the probability is just too low.
Look at what happened with price and VIX on 7th of December.
VIX was at lower edge of Bollinger Bands yet price continued up for another 4 days.
I wouldn’t be putting too much weight today on what VIX is doing, it’s not yet at lower edge of Bollinger Bands either.
I will give it a little weight today.
Updated hourly chart:
This small correction may present an opportunity to join the trend.
I’ll be looking carefully at volume, VIX and the AD line today to try and see what direction tomorrow may be. If down then I’ll wait for an entry, if up I’ll enter after hours.
Hi Lara
Im a complete novice, Im a little worried entering the sp500 at the moment as I think we maybe a little stretched on forward earnings. I am a new member, and I would like too see a good pullback before entering a long position. Hence I would like to short. Any idea when we may see your target of 2382. your website and analysis is fantastic.
Intermediate wave (5) should be shorter in length and duration than intermediate wave (3), so a Fibonacci 13 days at this stage looks likely. That’s in 10 more trading sessions, 2 weeks time.
Look at the last decent upwards wave that I’ve labelled intermediate wave (3) on my daily Elliott wave chart. Look at how brief and shallow the corrections within that wave were. This is typical of impulses within the S&P.
If you and any other members are looking for a deep pullback to provide a nice entry, it may not arrive. Price may keep moving up. Jumping in with good risk management, stops just below the invalidation, and holding on, may be a better approach to joining this trend. Accept that your position may be underwater for a few days, and put stops just below the invalidation point.
Absolutely do not break my two Golden Rules of Risk Management:
1. Always use a stop. If it’s a mental stop then apply it with discipline and watch the market carefully. Place your stop far enough away from your entry to give the market room to move, placing it too close in order to increase position size means your trade is decided by greed, don’t do that.
2. Do not invest more than 1-3% of equity on any one trade if you are a novice, and keep this closer to 1%.
This means your position may be small, it may be very small. Baby steps towards becoming a professional trader, it takes time.
I cannot stress enough how important risk management is. It is the single biggest difference between novices and professionals. If you learn nothing else but this from me then I would have done a good job 🙂
*edit to add: trying to go short here if you are a novice is not recommended. Stay with the trend, the trend is your friend. Trading against a trend is a sure way to lose money. Corrections within a trend are an opportunity to join that trend, not to be traded.
Thankyou Lara