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A new all time high was not expected for the bear Elliott wave count.

The only Elliott wave count now viable (that I can find) is bullish.

Summary: In the short term, a little more upwards movement to a target at 2,146 may then be followed by a few days of downwards movement to end just below 1,991.68. Thereafter, the bull market should continue for several months, at least.

New updates to this analysis are in bold.

MONTHLY CHART

S&P 500 monthly 2016
Click chart to enlarge.

The large expanded flat labelled Super Cycle wave (IV) completed a 8.5 year correction. Thereafter, the bull market continues for Super Cycle wave (V). The structure of Super Cycle wave (V) is incomplete. At this stage, it is subdividing as an impulse.

There is no Fibonacci ratio between cycle waves I and III within Super Cycle wave (V). This makes it more likely that cycle wave V will exhibit a Fibonacci ratio to either of cycle waves I or III. The most common ratio for a fifth wave is equality with the first wave, which gives a target at 2,500. The probability is increased with this target calculation being a round number.

The teal channel is drawn using Elliott’s first technique about an impulse. Draw the first trend line from the ends of cycle waves I to III (from the months of July 2011 to December 2014), then place a parallel copy on the low of cycle wave II. Cycle wave IV has found support very close to the lower edge of this channel, so the channel looks about right. The lower edge should continue to provide support, and the upper edge may provide resistance if price gets up that high. For the S&P500, its fifth waves commonly end mid way within these channels, so in due course a mid line may be added.

Copy this large channel over to weekly and daily charts, all on a semi log scale. The lower edge will be important.

Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV is now seen as a more shallow 0.28 double combination lasting 14 months. With cycle wave IV nearly five times the duration of cycle wave II, it should be over there.

Cycle wave I lasted 28 months (not a Fibonacci number), cycle wave II lasted a Fibonacci 3 months, cycle wave III lasted 38 months (not a Fibonacci number), and cycle wave IV lasted 14 months (one more than a Fibonacci 13).

If the target for cycle wave V is for it to be equal in length with cycle wave I, then it may also be expected to be about equal in duration. So far cycle wave V is in its fifth month. After this month, a further 23 months to total 28 seems a reasonable expectation, or possibly a further 16 months to total a Fibonacci 21.

The degree of labelling within cycle wave IV may be moved down one degree. This combination may be only primary wave A of a larger more time consuming flat correction for cycle wave IV. However, if that were the case, then cycle wave IV would be grossly disproportionate to cycle wave II and would end substantially outside the large channel containing Super Cycle wave (V). This is possible, but the probability looks to be too low for serious consideration.

If cycle wave IV is still continuing further, then it may not move into cycle wave I price territory below 1,370.58.

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge.

This weekly chart shows the resolution of prior problems for subdivisions within cycle wave IV.

If cycle wave III ended earlier at the end of November 2014 as shown, and not at the all time high, then cycle wave IV may have begun there. It now subdivides as a double combination and is mostly a sideways structure which has the right look for a combination.

The first structure in the double is an expanded flat labelled primary wave W. Intermediate wave (C) ends with a slightly truncated fifth wave within this structure. In this case, the truncation is acceptable because it did come after a movement that fits the description as “too far too fast” labelled minor wave 3. The truncation is small at 4.9 points.

The two structures of the double are joined by a zigzag in the opposite direction labelled primary wave X.

The second structure in the double is a zigzag labelled primary wave Y, which ends below the end of primary wave W but not enough for the whole of cycle wave IV to have a downwards slope. The whole structure has a sideways look fitting the purpose of a combination to move price sideways and take up time. It ends about the lower edge of the channel.

The prior problem of how to see the downwards wave labelled primary wave W is resolved with this wave count. This movement looks like and fits perfectly as a zigzag; any wave count that tried to see it as an impulse did not look right.

WEEKLY CHART – DETAIL CYCLE WAVE III

S&P 500 weekly 2016
Click chart to enlarge.

This chart is provided to show the detail of sub-waves at the end of cycle wave I, the zigzag of cycle wave II, and the subdivisions within cycle wave III.

Cycle wave III subdivides perfectly as an impulse. Within cycle wave III, primary wave 3 is just 0.76 points short of 2.618 the length of primary wave 1. This is the most likely labelling for this impulse because of this very close Fibonacci ratio and perfect subdivisions right down to the five minute chart level, whether it be a third wave or any other impulsive wave.

The change today is to the end of cycle wave III, primary wave 5 is seen as over earlier.

MAIN DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

Classic technical analysis still sees substantial weakness in recent upwards movement. It is my judgment today that the recent highs are more likely a B wave than the early stage of a third wave up.

Two daily charts are provided today. This main wave count has more support from classic technical analysis, so it is more likely. Primary wave 2 is seen as an incomplete expanded flat correction.

The common length for intermediate wave (B) is from 1 to 1.38 the length of intermediate wave (A), giving a range from 2,111.05 to 2,156.41.

The idea of a flat correction should be discarded when intermediate wave (B) exceeds twice the length of intermediate wave (A) above 2,230.42.

When intermediate wave (B) is complete, then a target may be calculated for intermediate wave (C) downwards. It would most likely end at least slightly below the end of intermediate wave (A) at 1,991.68 to avoid a truncation and a very rare running flat. It may end when price comes down to touch the lower edge of the channel copied over from the monthly chart.

Primary wave 2 may also be relabelled as a combination. The first structure in a double combination may be a complete regular flat labelled intermediate wave (W). The double would be joined by an almost complete zigzag in the opposite direction labelled intermediate wave (X). The second structure in the double may be a flat (for a double flat) or a zigzag to complete a double combination. It would be expected to end about the same level as the first structure in the double at 1,991.68, so that the whole structure moves sideways.

An expanded flat for primary wave 2 is more likely than a double combination because these are more common structures for second waves.

HOURLY CHART

S&P 500 hourly bear 2016
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The hourly charts show the structure of recent upwards movement. So far minor wave C is an incomplete impulse.

Within minor wave C, minute wave iii is 2.99 points short of 1.618 the length of minute wave i. Minute wave iv may not move into minute wave i price territory below 2,109.08.

At 2,146 minor wave C would reach 0.618 the length of minor wave A. This target allows intermediate wave (B) or (X) to be within the normal range of 2,111.05 to 2,156.41.

Draw a channel about the upwards movement. When price breaches the lower edge of this channel with clear downwards movement (not sideways), that shall be a very early indication that intermediate wave (B) or (X) may be over. Price confirmation would still be required.

Earliest price confirmation would come with a new low below 2,109.08. At that stage, downwards movement could not be a fourth wave correction and so minor wave C would have to be over.

Final price confirmation would come with a new low below 2,074.02. At that stage, downwards movement could not be a second wave correction within minor wave C. At that stage, also the alternate below would be invalidated.

Price may remain within the lower half of the channel as minor wave C completes.

ALTERNATE DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

It is possible that primary wave 2 is already complete as a shallow regular flat correction. Primary wave 3 may have begun.

At 2,292 primary wave 3 would reach equality in length with primary wave 1. This is the ratio used for the target in this instance because primary wave 2 was relatively shallow and it fits neatly with the high probability target of 2,500 for cycle wave V to end.

Primary wave 3 may only subdivide as an impulse. So far within it intermediate waves (1) and (2) may be complete.

Within intermediate wave (3), no second wave correction may move beyond its start below 2,074.02.

At 2,263 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).

ALTERNATE HOURLY CHART

S&P 500 hourly bear 2016
Click chart to enlarge.

The subdivisions at the hourly chart level are exactly the same today for both wave counts because 1-2-3 of an impulse subdivides exactly the same as A-B-C of a zigzag.

Within intermediate wave (3), minor wave 4 may not move into minor wave 1 price territory below 2,109.08.

Draw a small channel about the impulse unfolding upwards as shown. Minor wave 5 may end about the upper edge.

TECHNICAL ANALYSIS

MONTHLY CHART

S&P 500 monthly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

From the low of March 2009, price came with a clear decline in volume as price rose to the last all time high. The rise in price is still suspicious, so it is not supported by volume.

Thereafter, price came with an increase in volume as price moved sideways and lower for nine months. At the monthly chart level, so far the volume profile still looks bearish.

Price is still range bound. The new all time high seen today does not come with an increase in volume, so an upwards breakout is suspicious.

Nine months of sideways / downwards movement after the last all time high may have been enough to resolve RSI divergence and a failure swing.

On Balance Volume was a warning that in hindsight was not given enough weight. Recently, it broke above the purple line before price broke above resistance. At this stage, OBV is bullish at the monthly chart level which supports the wave count at the monthly chart level.

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

At the weekly chart level, it looks like price may be breaking above the upper orange resistance line, out of a recent consolidation zone. However, the breakout is on weak volume, so it is suspicious.

Volume is declining as price is rising. This is also clear at the daily chart level.

The lilac trend line line may provide some support for a downwards correction now that price is above it.

There is still double negative divergence with price and On Balance Volume at the daily chart level. This supports the main daily wave count over the alternate.

There is no bearish divergence between price and RSI at the weekly chart level though. I would give RSI more weight than divergence with OBV.

DAILY CHART

S&P 500 daily 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

Overall, volume is declining as price is rising (yellow trend line on volume). This rise in price must still be suspicious. This supports the main daily wave count over the alternate.

Today’s candlestick has a small real body and a relatively long upper wick. Although the bulls were able to make a very important new all time high today, they couldn’t push price up very far and the bears rallied at the end of the session to bring price lower.

ADX today is essentially flat indicating no clear trend. ATR agrees as it is flat to declining. The trend is suspicious, so this slightly supports the main wave count over the alternate.

On Balance Volume today broke above an important trend line, now coloured yellow. There is a little room for OBV to move higher, so this should allow price to also move a little higher. OBV may be reasonably expected to find resistance at the purple line and now support at the yellow lines.

Despite a new all time high, RSI today has failed to make a corresponding new high. This divergence with RSI supports the main daily wave count over the alternate. Divergence with RSI is reasonably reliable. This is not the same as always, but it should be given more weight than divergence with most other oscillators.

The divergence noted up to yesterday with price and Stochastics has disappeared today. Stochastics is overbought, so it should be expected that with ADX and ATR indicating no clear trend price should swing lower and continue down until it finds support and Stochastics reaches oversold at the same time.

MACD still exhibits strong and persistent divergence with price. This upwards movement lacks momentum which supports the main wave count over the alternate. MACD today is beginning to break above its trend line.

VOLATILITY – INVERTED VIX MONTHLY CHART

VIX monthly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

Inverted VIX has failed by a large margin to make a new high (latest blue lines) as price has made a new all time high today. This divergence indicates weakness in price; it is bearish. This supports the main wave count over the alternate.

VOLATILITY – INVERTED VIX DAILY CHART

VIX daily 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

VIX from StockCharts is inverted. As price moves higher, inverted VIX should also move higher indicating a decline in volatility which is normal as price moves higher. As price moves lower, inverted VIX should also move lower indicating an increase in volatility which is normal with falling price.

Along with multi month divergence between price and inverted VIX, there is also short term divergence (blue lines). This indicates weakness in price and supports the main daily wave count over the alternate.

BREADTH – McCLELLAN OSCILLATOR

S&P 500 daily 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

There is no longer short term divergence between price and the McClellan oscillator. This upwards movement has some short term support from breadth.

However, I also subscribe to Lowry Research. They note that the market is currently characterised by a lack of breadth, it looks internally weak.

DOW THEORY

The last major lows within the bull market are noted below. Both the industrials and transportation indicies have closed below these price points on a daily closing basis; original Dow Theory has confirmed a bear market. By adding in the S&P500 and Nasdaq a modified Dow Theory has not confirmed a new bear market.

Within the new bear market, major highs are noted. For original Dow Theory to confirm the end of the current bear market and the start of a new bull market, the transportation index needs to confirm. It has not done so yet.

Major lows within the prior bull market:

DJIA: 15,855.12 (15th October, 2014) – closed below on 25th August, 2015.

DJT: 7,700.49 (12th October, 2014) – closed below on 24th August, 2015.

S&P500: 1,821.61 (15th October, 2014) – has not closed below this point yet.

Nasdaq: 4,117.84 (15th October, 2014) – has not closed below this point yet.

Major highs within the new bear market:

DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.

DJT: 8,358.20 (20th November, 2015) – has not closed above this point yet.

S&P500: 2,116.48 (3rd Nobember, 2015) – has now closed above this point on 8th June, 2016.

Nasdaq: 5,176.77 (2nd December, 2015) – has not closed above this point yet.

It is a reasonable conclusion that the indices are currently in a bear market. The trend remains the same until proven otherwise.

Elliott wave is a method that provides earlier indication of change than Dow Theory. At this stage, there is no bear wave count for the S&P500 which I have found. The bear market for the other indices is in doubt in terms of Elliott wave, but Dow Theory has not yet confirmed an end to the bear market and the beginning of a new bull market.

This analysis is published @ 12:07 a.m. EST on 12th July, 2016.