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Bearishness between price and market breadth, VIX and RSI was the harbinger of a pullback that occurred during Thursday’s session.

Two Elliott wave counts illustrate now two possibilities for next movement, and classic analysis is used to determine the probability of each scenario.

Summary: The trend remains up and would be confirmed if price makes a new high tomorrow above 2,564.07. If that happens, then use the first target at 2,614, with a second target at 2,763 now.

A new low below 2,547.92 would now indicate a deeper and longer lasting pullback has arrived. Use the new best fit channel on the main daily chart to show where price may find support.

Always trade with stops and invest only 1-5% of equity on any one trade. If trading a correction against the larger trend, then reduce risk to 1-3% of equity.

Last monthly and weekly charts are here. Last historic analysis video is here.

MAIN ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2017
Click chart to enlarge.

This wave count has strong support from another bullish signal from On Balance Volume at the weekly chart level. While classic analysis is still very bullish for the short term, there will be corrections along the way up. Indicators are extreme and there is considerable risk to the downside still.

As a Grand Super Cycle wave comes to an end, weakness may develop and persist for very long periods of time (up to three years is warned as possible by Lowry’s for the end of a bull market), so weakness in volume may be viewed in that larger context.

Within minute wave v, no second wave correction may move beyond the start of its first wave below 2,417.35.

The next reasonable correction should be for intermediate wave (4). When it arrives, it should last over two months in duration, and it may find support about the lower edge of this best fit channel. The correction may be relatively shallow, a choppy overlapping consolidation, at the weekly chart level.

DAILY CHART

S&P 500 Daily 2017
Click chart to enlarge.

To see details of the whole of primary wave 3 so far see the analysis here.

Minor wave 3 may possibly be over and minor wave 4 may have begun today. If price breaks below the lower edge of the green Elliott channel, that would add substantial confidence to this wave count.

A yellow best fit channel is drawn about all of minor wave 3. Minor wave 4 may find support about the lower edge.

Minor wave 2 was a very shallow 0.15 zigzag lasting only three days. Given the guideline of alternation, it should be expected that minor wave 4 would most likely be a flat, combination or triangle. It should also be shallow; if it were to be deep, it would move too far below channels and the wave count at the weekly time frame may not then have the right look.

Minor wave 2 was remarkably brief at only three days; it was more brief than minute waves ii and iv one degree lower. Sometimes this is how impulses in the S&P unfold. Minor wave 4 would still be likely to be longer lasting than just three days for the right look overall.

While this is labelled the main wave count today, it may actually have a lower probability than the alternate. Also, we should always assume the trend remains the same until proven otherwise. A new low now below 2,547.92 would add confidence to this wave count.

HOURLY CHART

S&P 500 Hourly 2017
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It is possible just to see the structure of minute wave v to end minor wave 3 as complete.

If minor wave 4 has begun, then it should first unfold with a five down at the hourly chart level. That would be incomplete. While that is incomplete, subminuette wave ii may not move beyond the start of subminuette wave i above 2,564.07.

Minor wave 4 may end within the price territory of the fourth wave of one lesser degree, minute wave iv.

ALTERNATE WAVE COUNT

DAILY CHART

S&P 500 Daily 2017
Click chart to enlarge.

It is also possible that both minor waves 3 and 4 could be over.

My initial judgement was to label this as an alternate because of the brevity and shallowness of minor wave 4. This does not look right. However, there is still good alternation and good proportion with minor wave 2, which lasted only three days and was a zigzag. Here, minor wave 4 may have also lasted only three days and may have been a flat correction.

The first target is the same as it has been now for some time. A new second target is added at minor degree. If price reaches the first target and the structure is incomplete, or if price just keeps rising through it, then we may use the second target.

We should always assume the trend remains the same until proven otherwise. If this wave count is correct, then the low today was another opportunity to join the upwards trend.

Within minor wave 5, no second wave correction may move beyond the start of its first wave below 2,547.92.

HOURLY CHART

S&P 500 Hourly 2017
Click chart to enlarge.

Minute wave v may have been an ending contracting diagonal, which may have ended minor wave 3.

Minor wave 4, lasting only three days, may be an expanded flat correction. On the five minute chart, the downwards wave labelled minute wave c will subdivide as a five wave impulse with quick shallow fourth wave corrections at its end.

Have some confidence in this wave count if tomorrow sees another all time high. If that happens, then price is telling us that the trend remains up.

TECHNICAL ANALYSIS

WEEKLY CHART

S&P 500 weekly 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

Again, this week this chart remains very bullish. A doji on its own is not a reversal signal, and doji may appear as small pauses within upwards trends.

RSI is overbought and exhibits longer term divergence with price, but not short term. If short term divergence develops, then a pullback would be more likely. RSI may move higher to further overbought and may remain there for a reasonable period of time during a strong bull trend in the S&P500. On its own, it does not mean a pullback must happen here and now; it is just a warning at this stage for traders to be cautious and manage risk. Overbought conditions mean the risk of a pullback is increasing.

DAILY CHART

S&P 500 daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

There is no candlestick reversal pattern here on the daily chart.

Bullish: Moving averages, volume, today’s candlestick, On Balance Volume, MACD and Bollinger Bands.

Extreme indicators giving warning signs: ADX, ATR, divergence with RSI and divergence with Stochastics.

The safest approach to this market may be to assume the trend remains the same, which is upwards. But manage risk and be aware this market is susceptible to violent pullbacks as indicators are now extreme.

Pullbacks should be used as an opportunity to join the upwards trend.

VOLATILITY – INVERTED VIX CHART

VIX daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.

A downwards day may have resolved prior bearish signals from VIX, or it may need one more day to be resolved.

The balance of volume today was upwards and the candlestick was green. Upwards movement during this session came with a normal corresponding decline in volatility to support it.

BREADTH – AD LINE

AD Line daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

With the last all time high for price, the AD line also made a new all time high. Up to the last high for price there was support from rising market breadth.

There is normally 4-6 months divergence between price and market breadth prior to a full fledged bear market. This has been so for all major bear markets within the last 90 odd years. With no divergence yet at this point, any decline in price should be expected to be a pullback within an ongoing bull market and not necessarily the start of a bear market.

A downwards day may have now resolved prior bearish signals from the AD line, or one more downwards day may be needed to resolve this.

The balance of volume today was upwards and the candlestick closed green. The AD line shows a very slight increase which supports upwards movement during this session. This is bullish, but only very slightly so.

Small, mid and large caps have all made new all time highs. The rise in price is supported in all sectors of the market.

Go with the trend. Manage risk.

DOW THEORY

All the indices are making new all time highs. The continuation of the bull market is confirmed.

The following lows need to be exceeded for Dow Theory to confirm the end of the bull market and a change to a bear market:

DJIA: 17,883.56.

DJT: 7,029.41.

S&P500: 2,083.79.

Nasdaq: 5,034.41.

Charts showing each prior major swing low used for Dow Theory are here.

Published @ 11:05 p.m. EST.