Category Archives: Indicies

S&P 500 Elliott Wave Technical Analysis – 23rd January, 2017

Downwards movement was expected, but it remains within the prior range of sideways movement. There has been no breakout yet.

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S&P 500 Elliott Wave Technical Analysis – 20th January, 2017

A little upwards movement invalidated the hourly Elliott wave count.

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S&P 500 Elliott Wave Technical Analysis – 19th January, 2017

Price has moved lower for the session as expected from the hourly Elliott wave count.

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S&P 500 Elliott Wave Technical Analysis – 18th January, 2017

Upwards movement within the session did not make a new high. Price remains below the invalidation point on the hourly Elliott wave count.

Continue reading S&P 500 Elliott Wave Technical Analysis – 18th January, 2017

Long Term Technical Analysis of Indices: DJIA, DJT and S&P500 – Video – 18th January, 2017

Long Term Technical Analysis of Indices: DJIA, DJT and S&P500 – 18th January, 2017

An analysis of monthly charts of the Dow, Transportations and the S&P500 may be helpful in identifying whether or not the current bull market is healthy and likely to continue or shows signs of weakness.

Bull markets end and eventually turn into bear markets for a time. Often this change comes with technical weakness some months prior to a trend change. Technical weakness cannot be used as a signal nor as a timing device to exit a bull market, but it can be used to provide advance warning of an impending bear market which investors should use to watch markets carefully and increase levels of caution.

DOW JONES INDUSTRIAL AVERAGE

MONTHLY CHART

DJIA Monthly 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

I will not use the purple Magee trend lines on this monthly chart for the DJIA. I have concluded that after analysis of that method it does not work sufficiently well to be of any reasonable use for this market at this time frame.

A bull market should be accompanied by a corresponding rise in volume for it to be healthy and sustainable. Price requires the active participation of buyers for it to continue to move higher. The bull market of October 2002 to October 2007 was accompanied by a rise in volume to support price.

For a bear market, a rise in volume is not necessary for price to fall. Price may fall of its own weight; an absence of buyers can force price lower just as increased activity of sellers can achieve the same thing.

The bear market of October 2007 to March 2009 did see some reasonable increase in volume to assist the fall in price.

The first three months of the current bull market (for March, April, and May 2009) saw very heavy volume, the balance of all which was upwards. However, through each month volume declined and has continued to be lower since. Overall, this current bull market is accompanied by a decline in volume. This is somewhat unsteady, but it does continue. This indicates weakness in the bull market but cannot assist in identifying when it may end. The decline is clear enough and has persisted now for years, so investors should be cautious in this market.

On Balance Volume often works well with trend lines to indicate a following direction from price. OBV gives a bullish signal in May 2016 with a break above the purple resistance line, and again in November 2016 with a bounce up from a back test of that same line.

RSI often provides a warning of an impending trend change. Again, this cannot be used to pinpoint a turn for price; it is a warning of weakness only. This works for both bull and bear markets. For bull markets the warning can span years and for bear markets it more often is short lived spanning only months.

RSI exhibited divergence with price at the end of the bull market ending in January 2000 going back to July 1997 (not shown on this chart). The warning given spanned 30 months and developed onto triple bearish divergence before price turned.

At the end of the DotCom crash in October 2002, there was no warning of an end to the bear market from RSI. There was no divergence and RSI did not reach oversold. This indicator does not always work to warn of the end to a bear market.

At the end of the bull market in October 2007, RSI exhibited single bearish divergence with price spanning only three months. The message here is that this warning cannot be used for market timing.

At the end of the Global Financial Crisis in March 2009, there was only single month divergence with price and RSI, with RSI oversold.

Currently, there is single bearish divergence with price and RSI spanning 26 months. This could certainly continue for longer before price turns, but it cannot be useful in timing. However, it should warn investors to be cautious in this current bull market.

ADX can be useful to tell if a trend is extreme or young. An ADX reading above 35 (yellow line) is considered extreme. When the black ADX line is above both directional lines the trend is extreme. If this occurs with ADX also above 35, then extreme caution is warranted because the trend is likely to end very soon. This was the case in October 2002 and March 2009. In both instances that was the month a bear market ended.

In October 2007, at the end of the last bull market, ADX was below 35 but did manage to rise above both of its directional lines in August 2007, two months before the bull market ended.

Currently, ADX is not extreme. It is quite the opposite. It is rising and only just above 15. The ADX line is below both directional lines. This indicates a young bull market after the large correction that ended in January 2016.

If ADX reaches extreme, either above both the directional lines or above 35, then investors would be warned to cull underperforming stocks and be alert for a potential bear market. That is not the case today.

DOW JONES TRANSPORTATION AVERAGE

MONTHLY CHART

DJT Monthly 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

The purple lines are trend lines drawn using the technique outlined by Magee in the classic “Technical Analysis of Stock Trends”.

This simple method would have worked well for DJT to confirm an end to a bull or bear market. For a bull market, the trend line is drawn across the first two major lows within the market. For a bear market, the trend line is drawn from the start of the bear to the first major high within it.

The current bull market has price comfortably well above the trend line. If this line is breached, it would serve to provide strong confidence that a bear market would be underway and likely in the early stages for DJT.

Volume shows the same weakness here as it does for the industrials. The decline is less steady for DJT, but volume is still overall declining as price continues higher.

A long term support line can be drawn for DJT on On Balance Volume. If OBV comes down to this line, it should initially be expected to offer support and assist to halt a fall in price there. If the line is breached, then it would provide a bearish signal (but not a strong one as the line has been tested only twice).

Prior to the end of the bull market in April 1998 for DJT, there was only single month divergence with price and RSI for the month of April 1998: RSI declined as price made the final high. This would not have been very useful at all in timing, but it did offer a small warning of weakness.

At the end of the DotCom crash in March 2003, there was substantial single bullish divergence between price and RSI at the last two major lows. This would have been a strong warning that the bear market was coming to an end.

At the end of the bull market in May 2008, there was double bearish divergence between price and RSI. The message here is that this divergence can be longer held at the end of bull markets than it normally is in bear markets, a tendency that I have long noticed.

At the end of the Global Financial Crisis in March 2009, there was only single month divergence between price and RSI for DJIA and RSI was oversold.

Currently, there is very strong divergence between price and RSI back to November 2014. This is a warning again of some weakness in this bull market, so investors would be wise to be alert and cautious.

ADX indicates no clear trend yet for DJT as the black ADX line is declining. It remains above both the directional lines.

The situation at this time for DJT is more bearish than DJIA or the S&P500.

S&P500

MONTHLY CHART

S&P500 Monthly 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

Magee trend lines do not work well for this market, so only one is drawn for the current bull market. This line will not be given much weight in future analysis, but it will be watched.

The last bull market exhibited support from rising volume, but this current bull market does not. Price is rising overall on declining volume, a situation which indicates a lack of participation of bulls. This has been sustained now though for some years, so it may continue for some time. What it does possibly signal is that when this market turns from bear to bull the decline may be strong and very fast.

Price exited a box which spanned 27 months (cyan box). The duration of this box suggests the following trend should also be of long duration. So far it has only lasted for a total of six months.

At the beginning of the two bear markets, shown on this chart, price and RSI exhibited multi month divergence. A failure swing was also seen prior to the DotCom crash. This may happen again, or RSI may move back into overbought. Current divergence goes back to November 2014, and it may continue for longer. This only indicates weakness in this market and cannot be useful for timing.

On Balance Volume has given two bullish signals recently with a breach of the purple trend line and a retest.

ADX was extreme at the beginning of the last two bear markets. That is not the case at this time. ADX is rising and below 15. If it rises above 15, it would indicate a long term bull trend. It remains below both directional lines, so the trend would be young.

Summary: The current bull market may continue for several months. There are signs of weakness, particularly declining volume and long term divergence between price and RSI. Investors would be wise to be cautious in this bull market.

If price breaks below long term monthly support lines and / or if ADX moves to extreme, then investors would be wise to cull underperforming stocks and tighten stops on long positions.

This analysis is published @ 04:50 p.m. EST.

S&P 500 Elliott Wave Technical Analysis – 17th January, 2017

Downwards movement was expected from the Elliott wave count and classic technical analysis for Tuesday’s session. This is what has happened.

Continue reading S&P 500 Elliott Wave Technical Analysis – 17th January, 2017

S&P 500 Elliott Wave Technical Analysis – 13th January, 2017

Downwards movement was again expected, but this time did not eventuate for Friday.

Price moved higher but did not make a new high, and volume was weaker.

Note: NYSE is closed on Monday, so there will be no new price action from BarChart to analyse. Next analysis of this market will be after Tuesday’s close.

Summary: Some downwards movement to find support at the lilac / purple trend line is expected, about 2,211. If this target is wrong, it may be a little too low. Use the trend line as a preference. If this correction ends in a total Fibonacci 34 sessions, it may end on the 2nd of February. Thereafter, the bull market should resume.

This bull market is strong and healthy. Use this correction as another opportunity to join the trend.

New updates to this analysis are in bold.

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

DAILY CHART

S&P 500 Daily 2017
Click chart to enlarge.

Intermediate wave (4) is exhibiting alternation with intermediate wave (2). Intermediate wave (2) is a double zigzag and intermediate wave (4) is an incomplete expanded flat.

Along the way up to the final target at 2,500 a more time consuming fourth wave correction for primary wave 4 would be expected for this wave count.

The purple trend line is the most important piece of technical analysis on all charts. Draw it carefully from prior all time highs of 2,134.28 on the 21st of May, 2015, to 2,193.81 on the 15th of August, 2016. Extend it out. Daily charts are on a semi log scale.

The correction for intermediate wave (4) should end if price comes down to touch the purple trend line.

Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,193.81.

At this stage, intermediate wave (4) has lasted 21 sessions. With the very slow rate of this correction it may now be possible for it to continue for another 13 sessions to total a Fibonacci 34. This would see it end on the 2nd of February.

HOURLY CHART

S&P 500 hourly 2017
Click chart to enlarge.

If the target calculated is wrong, it may be too low. Price may find strong support just above the target at the purple trend line. This line is copied over carefully from daily and weekly charts, which are both on semi log scales. This hourly chart is on an arithmetic scale, meaning the line will sit slightly differently. Both should be watched carefully.

Minor wave C must complete as a five wave structure. It is extremely likely to make at least a slight new low below the end of minor wave A at 2,233.62 to avoid a truncation and a very rare running flat.

The green resistance line drawn in last analysis was breached and is no longer useful, so it is removed.

An invalidation point is added within minor wave C. Minute wave ii may not move beyond the start of minute wave i above 2,282.10.

Minute wave ii may be a complete expanded flat correction. If this labelling is correct, then when markets open for Tuesday minute wave ii may begin with a very little upwards movement to move minuette wave (c) above the end of minuette wave (a) at 2,279.27 to avoid a truncation and a very rare running flat.

Thereafter, downwards movement should show some increase in momentum as a low degree third wave unfolds.

TECHNICAL ANALYSIS

WEEKLY CHART

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

This week completes an inside week for a Dragonfly doji. Doji are common within consolidations, so this does not signal any trend change but does support the idea that price is consolidating for this week.

The week completed with stronger volume, the balance of which was downwards. There was some support for downwards movement during the week and this also supports the idea that price is within a consolidation that may move lower.

RSI is not extreme. There is room still for price to continue higher when the consolidation is complete.

ADX indicates price is most likely in the early stages of a new trend. The black ADX line is increasing and above 15 but below both directional lines, so the trend is young. The +DX line is above the -DX line, so the trend is indicated as upwards.

DAILY CHART

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

An upwards day with a longer upper wick and almost no lower wick completes a small range day. This comes with a further decline in volume. There was not support for the upwards movement in price today. This may resolve the bullishness seen in the long lower wicks of the two daily candlesticks prior, noted in last analysis.

Overall, price is now consolidating sideways. This view is supported by small range days coming on declining volume. Another small bull flag pattern may be completing, delineated by light blue trend lines. However, with some weakness (divergence) at the last high, this flag pattern may not work. If it does, then it needs an upwards breakout above resistance on a day with an increase in volume. The measured rule gives a target of about 2,323.

The bear flag pattern here is an opposite view to the Elliott wave count. If the hourly Elliott wave chart is invalidated by a new high, then use the measured rule given from the flag pattern.

The trend is still up. The short term Fibonacci 13 day average is above the mid term Fibonacci 55 day average, and both are above the long term average. All three are pointing up. Price may find support at the short term average for smaller corrections within the trend, and at the mid term average for larger corrections within the trend.

On Balance Volume remains tightly constrained, and these trend lines now have good technical significance, particularly the purple resistance line. This may assist to halt the rise in price for Friday here. A breakout would be a strong signal in either direction here.

At the last high, RSI exhibited some divergence with price to indicate the last wave up was relatively weak. This supports the Elliott wave count short term.

MACD is bearish. This also offers some small support for the Elliott wave count short term.

Bollinger Bands remain tightly constrained. Expect them to begin to widen again as volatility returns to the market.

VOLATILITY – INVERTED VIX CHART

VIX daily 2017
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.

Short term hidden bearish divergence is noted today between price and inverted VIX: price has made a lower high, but inverted VIX has made a new high. This indicates weakness to upwards movement from price, and it may be followed by one or two days of downwards movement.

BREADTH – AD LINE

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

Short term bullish and bearish divergence is again working between price and the AD line to show the direction for the following one or two days.

The AD line today made a new all time high, but price failed to make a corresponding new high. This is hidden bearish divergence and indicates weakness within upwards movement today from price. This may now be followed by one or two days of downwards movement.

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 @ 06:58 p.m. EST.

[Note: Analysis is public today for promotional purposes. Member comments and discussion will remain private.]

Continue reading S&P 500 Elliott Wave Technical Analysis – 13th January, 2017

S&P 500 Elliott Wave Technical Analysis – 12th January, 2017

Downwards movement was expected from the Elliott wave count and supported by classic technical analysis. Divergence with price and VIX and the AD line indicated price was likely to move lower today.

Continue reading S&P 500 Elliott Wave Technical Analysis – 12th January, 2017