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S&P 500 Elliott Wave Technical Analysis – 3rd November, 2017

Upwards movement continues exactly as the main Elliott wave count and classic technical analysis expected.

On Balance Volume continues to be very bullish. The targets remain the same.

Summary: The Elliott wave target is at 2,616 and a target from a small pennant pattern is 2,617. The upwards trend has support from very bullish On Balance Volume.

However, assume the trend remains the same until proven otherwise. The trend is up.

Weakness at the end of this week in market breadth points to the alternate hourly Elliott wave count possibly being correct. If price breaks below the green Elliott channel on the hourly charts, then expect a multi day pullback or consolidation is underway.

Pullbacks and consolidations at their conclusions offer opportunities to join the upwards trend.

Always trade with stops and invest only 1-5% of equity on any one trade.

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.

When minor wave 3 is complete, then minor wave 4 should find support about the lower edge of the best fit channel. Minor wave 4 may not move into minor wave 1 price territory below 2,299.55.

The next reasonable correction should be for intermediate wave (4). When it arrives, it should last over two months in duration. 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.

Minute wave v is completing as an impulse. The final fifth wave of minuette wave (v) is underway.

The target for minor wave 3 expects to see the most common Fibonacci ratio to minor wave 1.

Within minuette wave (v), no second wave correction may move beyond the start of the first wave below 2,544.00.

HOURLY CHART

S&P 500 Hourly 2017
Click chart to enlarge.

Assume the trend remains the same until proven otherwise. Assume the trend remains up while price remains within the green channel and above 2,544.

Minuette wave (v) must subdivide as a five wave structure. It may be an impulse with subminuette waves i and ii complete. Subminuette wave ii now looks like a completed three wave zigzag.

This wave count expects to see a further increase in upwards momentum as a small third wave up unfolds.

Within subminuette wave iii, no second wave correction may move beyond its start below 2,566.17.

A breach of the green channel by downwards movement would be the earliest indication that this first wave count may not be correct. If that happens, then seriously consider the alternate hourly wave count below.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2017
Click chart to enlarge.

This alternate simply moves the degree of labelling within the last five up all up one degree. It is possible again that minor wave 3 could be over.

Minor wave 2 was a quick shallow 0.16 zigzag lasting just three days. Minor wave 4 should also show up at the daily chart level. It may be a sideways consolidation, subdividing as a flat, combination or triangle, to exhibit alternation with the zigzag of minor wave 2. These structures are often more time consuming than zigzags. So far minor wave 4 may have lasted five days and the structure would be incomplete. It may end in a total Fibonacci eight or possibly even thirteen days.

A new correction at minor degree should begin with a five down at the hourly chart level. This has not happened, a three down only is complete. The probability of this wave count is reduced.

It is possible that minor wave 4 is beginning with a flat correction for minute wave a. Within the flat, minuette wave (b) has passed the minimum 0.9 length of minuette wave (a). Minuette wave (b) may continue higher above the start of minuette wave (a) at 2,588.40 as in an expanded flat.

Upwards movement during Thursday’s session has some reasonable support from volume. This reduces the probability of this alternate wave count; B waves should exhibit weakness, not strength.

TECHNICAL ANALYSIS

WEEKLY CHART

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

The Hanging Man candlestick requires bearish confirmation because the long lower wick has a strong bullish implication. This week has not given bearish confirmation, so the Hanging Man candlestick should not be read as a reversal signal.

Indicators are now extreme, but at this stage there is not enough weakness in price to indicate an end to the upward trend here. Extreme conditions for ADX and RSI may persist for several weeks while price continues higher.

DAILY CHART

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

Pennants are one of the most reliable continuation patterns. The measured rule calculates a target about 2,617. Because this is only one point off the Elliott wave target, this area may offer strong resistance.

On Balance Volume remains very bullish. Volume today shows some decline, but this can persist for reasonable periods of time in current market conditions while price may continue to rise. On its own, this decline in volume signals a warning of weakness, but it will not be useful in timing an end to this upwards movement.

There is less weakness evident today as double divergence between price and RSI now becomes only single divergence. This divergence indicates some weakness here in price, but again it will not be useful as a timing tool to show when price has found a high.

On Balance Volume will be given the most weight in this analysis because it remains one of the most reliable indicators in current market conditions.

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.

Bullish divergence noted in last analysis has now been followed by an upwards day to a new all time high for price. This divergence may now be resolved or it may need one more upwards day to resolve it.

There is no new divergence today. Both price and inverted VIX have made new all time highs. The rise in price today has come with a normal corresponding decline in volatility. This is bullish.

BREADTH – AD LINE

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

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 longer term 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.

There is new bearish divergence today between price and the AD line: price has moved higher to make a new all time high, but the AD line has moved lower for the session. The rise in price did not have support from rising market breadth, so this divergence is bearish and points to a red daily candlestick for Monday and / or Tuesday.

Small caps have moved lower during this week failing to make new all time highs. Mid caps made their last all time high on Wednesday and have failed to make a new all time high for Friday. There is some very short term weakness within this market developing.

DOW THEORY

At the end of this week, only DJT has failed to make a new all time high. The S&P500, DJIA and Nasdaq have made new all time highs. DJT has failed so far to confirm an ongoing bull market.

Failure to confirm an ongoing bull market should absolutely not be read as the end of a bull market. For that, Dow Theory would have to confirm new lows.

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 @ 06:12 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 – 3rd November, 2017

What Signals A Crash? A Look at 3 Historic Examples | 26th October, 2017

Could the indicators and classic technical analysis used here at Elliott Wave Stock Market have warned of the last three major crashes of 1987, 2000 and 2007?

1987

WEEKLY CHART

S&P 500 Weekly 1987
Click chart to enlarge.

A candlestick pattern at the high offered the first warning of a trend change.

Moving averages are lagging indicators. They offered no warning at the high. They only caught up with the crash after the low; in November 1987 they were full bore bearish.

ADX gave no warning.

RSI offered a strong warning with double bearish divergence while overbought.

Stochastics offered a weak warning.

MACD was fully bullish at the high.

Volume data is unavailable for this time period from StockCharts.

DAILY CHART

S&P 500 Daily 1987
Click chart to enlarge.

Moving averages were fully bullish at the high. This changed on the 13th of October to a mid term pullback, and finally on the 28th of October they were fully bearish.

ADX at the daily chart level did offer an early warning of an extreme upwards trend susceptible to a pullback.

RSI offered a reasonable warning of a high in place, as did Stochastics.

MACD gave a bearish crossover on the 27th of August, and was fully bearish by 15th of September.

AD LINE

S&P 500 Daily 1987
Click chart to enlarge.

The AD line did offer a strong warning, with over 4 months of clear bearish divergence. Double divergence developed just before the high.

2000

WEEKLY CHART

S&P 500 Weekly 2000
Click chart to enlarge.

For later data, volume data is also available.

A strong bearish candlestick reversal pattern was seen at the high.

Volume offered no warning. The first bearish signal from On Balance Volume came in mid March.

At the high, in March 2000, moving averages were fully bullish.

ADX offered no warning. ATR offered no warning.

Not only did RSI not offer any warning, it indicated there was room for price to rise.

Stochastics did offer a warning with bearish divergence.

MACD was fully bullish at the high.

DAILY CHART

S&P 500 Daily 2000
Click chart to enlarge.

A candlestick reversal pattern was given at the daily chart level as well as the weekly.

The first bearish signal from On Balance Volume came on the 12th of April.

ADX and ATR offered no warning. RSI showed very weak bearish divergence and was not overbought at the high.

Stochastics offered no warning. MACD was fully bullish.

By the 13th of April, bearish signals came from: On Balance Volume, MACD, ADX and rising volume with falling price.

AD LINE

S&P 500 Daily 2000
Click chart to enlarge.

Of all three examples looked at in this article, the strong and persistent divergence between price and the AD line in March 2000 is the most striking. This would have been a very strong warning that something big to the downside may be brewing.

2007

WEEKLY CHART

S&P 500 Weekly 2007
Click chart to enlarge.

A very strong Bearish Engulfing pattern at the high offered some warning.

Volume offered a small warning as it declined up to the high in October 2007. On Balance Volume offered no warning; its first bearish signal came at the end of December 2007.

ADX offered some reasonable warning as it had been extreme for a long time prior to the high, and then had declined as price moved higher.

RSI offered a warning with long term bearish divergence.

Stochastics also offered a warning with single bearish divergence.

MACD was fully bullish at the high and only became fully bearish at the end of December 2007.

DAILY CHART

S&P 500 Daily 2007
Click chart to enlarge.

Moving averages offered no warning. Volume did offer some warning as it declined towards the final high.

On Balance Volume did not offer a warning prior to the high, but it did give a bearish signal very soon after on the 15th of October, 2007. This was followed by two more bearish signals shortly after, noted on the chart.

ADX offered no warning.

ATR offered some warning as it declined towards the final high.

RSI offered no warning. Stochastics offered only a weak bearish warning.

MACD was fully bullish.

AD LINE

S&P 500 Daily 2007
Click chart to enlarge.

The AD line again offered a very strong warning, with clear and strong divergence over 4 months.

CONCLUSION

Markets do not repeat, but they do rhyme.

In each of these examples of price approaching a final high prior to a large bear market, only the AD line was consistent in offering a warning each time. That does not mean it must do so prior to a future bear market, only that the probability of it doing so again for at least 4 months is high.

The other indicator which appears to more consistently offer a warning shortly after a high is On Balance Volume.

The current bull market today has no divergence with the AD line, and no bearish signals at all from any of the indicators studied here. That points to a very low probability of a bear market developing in the next few months.

Published @ 3:26 a.m. EST on 27th October, 2017.

Expanded Flat Corrections – A Real Life Example | 1st September, 2017

I mentioned in comments on Thursday that I wanted to illustrate a real life example of an expanded flat. The concept is important when trading corrections.

S&P 500 daily 2017
Click chart to enlarge.

I did not have to go far back at all to find a good example of this very common corrective structure.

This expanded flat is in a second wave position within the final wave up of intermediate wave (5), which may have ended primary wave 3 at the last all time high.

Within expanded flats, both waves A and B must be three wave structures. Wave B is a minimum 1.05 length of wave A, so it makes a new price extreme beyond the start of wave A.

There is unfortunately no rule stating a maximum length for B waves within flats. There is a convention within Elliott wave that states when the possible B wave is longer than twice the length of the possible A wave the idea of an expanded flat should be discarded based upon a very low probability. I have seen a few expanded flats though which in hindsight were correct that had B waves that were longer than twice the length of their A waves.

The longer wave B is in relation to wave A the longer wave C should be expected to be. Here, wave C has a good Fibonacci ratio to wave A. Wave C of an expanded flat should move substantially beyond the end of wave A. The whole structure has an expanding sideways look to it.

Expanded flats are very common (only zigzags would be more common). It is my judgement given nine years of professional daily Elliott wave analysis that expanded flats are the second equal most common corrective structures alongside combinations.

What technical signals may give an expanded flat away? The answer lies in the strength, or lack of it, in wave B.

S&P 500 daily 2017
Click chart to enlarge.

Within wave B, some weakness can be noticed from:

– Very slight divergence at the end of wave B between price and RSI.

– Strongly declining ATR.

– Strong divergence at the end of wave B between price and Stochastics, after Stochastics has reached extreme.

– Declining volume.

Published @ 03:13 a.m. EST on 2nd September, 2017.

S&P 500 Elliott Wave Technical Analysis – 28th August, 2017

Bearish divergence noted in last analysis between price and breadth and price and volatility has been followed by a downwards day. This was expected.

Summary: The bigger picture sees the S&P now in a primary degree pullback to last a minimum of 8 weeks and find support at the maroon channel on the weekly chart.

Watch the upper blue trend line on the main hourly chart carefully. If price breaks above it, then look for upwards movement to end somewhere in the zone of 2,466 to 2,477. A new high above 2,453.71 would provide price confidence in this view.

However, the short term trend remains the same (down) until proven otherwise. Assume new lows are ahead while price remains below the blue trend line.

The short term target for a third wave down is still at 2,389.

If price moves above 2,474.93, then use the alternate hourly chart.

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

ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2017
Click chart to enlarge.

Primary wave 3 now looks complete. Further and substantial confidence may be had if price makes a new low below 2,405.70, which is the start of minor wave 5 within intermediate wave (5). A new low below 2,405.70 may not be a second wave correction within an extending fifth wave, so at that stage the final fifth wave must be over. Fibonacci ratios are calculated at primary and intermediate degree. If primary wave 3 is complete, then it still exhibits the most common Fibonacci ratio to primary wave 1.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

Primary wave 4 should last about 8 weeks minimum for it to have reasonable proportion with primary wave 2. It is the proportion between corrective waves which give a wave count the right look. Primary wave 4 may last 13 or even 21 weeks if it is a triangle or combination. So far it has lasted only two weeks.

If primary wave 4 reaches down to the lower edge of the Elliott channel, it may end about 2,325. This is within the range of intermediate wave (4); fourth waves often end within the price territory of the fourth wave of one lesser degree, or very close to it.

The final target for Grand Super Cycle wave I to end is at 2,500 where cycle wave V would reach equality in length with cycle wave I. If price reaches the target at 2,500 and either the structure is incomplete or price keeps rising, then the next target would be the next Fibonacci ratio in the sequence between cycle waves I and V. At 2,926 cycle wave V would reach 1.618 the length of cycle wave I.

DAILY CHART

S&P 500 Daily 2017
Click chart to enlarge.

The daily chart will now focus in on the unfolding structure of primary wave 4.

Primary wave 2 was a regular flat correction lasting 10 weeks. Given the guideline of alternation, primary wave 4 may most likely be a single or double zigzag. Within both of those structures, a five down at the daily chart level should unfold. At this stage, that looks incomplete.

While primary wave 4 would most likely be a single or double zigzag, it does not have to be. It may be a combination or triangle and still exhibit structural alternation with primary wave 2. There are multiple structural options available for primary wave 4, so it is impossible for me to tell you with any confidence which one it will be. It will be essential that flexibility is applied to the wave count while it unfolds. Multiple alternates will be required at times, and members must be ready to switch from bear to bull and back again for short term swings within this correction.

While intermediate wave (A) is labelled as an unfolding impulse, it may also be a diagonal. Both structures are considered at the hourly chart level.

Intermediate wave (A) may also be a zigzag if primary wave 4 is to be a triangle. So far it is possible a zigzag downwards could be complete, but it is not deep enough for wave A of a triangle when it is viewed on the weekly chart. And so that possibility will not be considered at this time.

MAIN HOURLY CHART

S&P 500 hourly 2017
Click chart to enlarge.

Minor wave 1 downwards looks very clear as a five wave structure.

Minor wave 2 upwards ended just above the 0.618 Fibonacci ratio. Minor wave 3 downwards has now made a new low below the end of minor wave 1, meeting the Elliott wave rule.

Minor wave 3 now exhibits slightly stronger momentum than minor wave 1. A further increase in downwards momentum would be expected.

Minuette wave (i) will fit as a leading contracting diagonal. Minuette wave (ii) may now be a completed deep zigzag.

Another leading contracting diagonal may have completed today for subminuette wave i. Subminuette wave ii may not move beyond the start of subminuette wave i above 2,453.71.

If price moves higher above the upper edge of the base channel, then the alternate below should be preferred as soon as that trend line is breached and before the invalidation point is passed.

The target expects minor wave 3 to be an extension. When third waves extend, they do so both in price and time. They often show their subdivisions at higher time frames, which is why minute waves ii and iv may show up on the daily chart.

Minute wave iii may also be extending; it is common for the middle of third waves to extend and be stretched out. With minute wave iii extending, it too may show its subdivisions at the daily chart level.

ALTERNATE HOURLY CHART

S&P 500 hourly 2017
Click chart to enlarge.

If the base channel on the main hourly chart is breached by upwards movement, use this alternate.

The other possible structure for intermediate wave (A), if it is to be a five, would be a leading diagonal. These are not as common as impulses, so this must be an alternate wave count judged to have a lower probability than the main wave count. However, low probability does not mean no probability. All possibilities should be considered.

Within leading diagonals, the first, third and fifth waves are most commonly zigzags. They may also appear to be impulses. Here, minor wave 1 will fit as a zigzag.

Second and fourth waves must be zigzags. Minor wave 2 may not move beyond the start of minor wave 1 above 2,490.87.

Sideways movement of the last four sessions fits well as a triangle. This is supported by MACD hovering about zero. So far the triangle adheres well to its trend lines; this looks correct. If a triangle is unfolding as it is labelled here, then the breakout should be upwards.

Second and fourth waves within diagonals are usually very deep; a range is given for the common depth.

Minor wave 3 would have to move below the end of minor wave 1 at 2,417.35. Minor wave 3 downwards of a leading diagonal should still exhibit an increase in downwards momentum and should still have support from volume.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last week has made a lower low and lower high, but the candlestick closed green and the balance of volume was upwards. Lighter volume does not support the rise in price during the week.

ADX had been extreme for a long time and is now declining. The black ADX line is now declining but has not yet been pulled down below both directional lines, so the consolidation or pullback may be expected to continue.

DAILY CHART

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

For the last four sessions, price has been moving sideways and volume overall has been declining. A small pennant pattern may be forming. But volume is strongest on a downwards day within this small consolidation suggesting a downwards breakout is more likely. However, the pennant pattern suggests an upwards breakout.

A target using the measured rule for the possible pennant would be about 2,487.

On Balance Volume suggests that any upwards movement may be limited. Watch On Balance Volume carefully over the next few days. A breakout there may indicate the next direction for price.

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.

Bearish divergence noted in last analysis between price and inverted VIX has now been followed by one downwards day. It may now be resolved, or it may need one more downwards day to resolve it. There is no new divergence today.

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.

Short term bearish divergence noted in last analysis has now been followed by one downwards day. It may be resolved here or it may need one more downwards day to resolve it. There is no new divergence today between price and the AD line.

DOW THEORY

The S&P500, DJIA, DJT and Nasdaq have all made new all time highs recently.

Modified Dow Theory (adding in technology as a barometer of our modern economy) sees all indices confirming the ongoing bull market.

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 @ 09:50 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 – 28th August, 2017

Volume and Breakouts – Is it Necessary? | 11th August, 2017

This chart was published two days ago. At that time, it was warned that the possible upwards breakout of the 8th of August lacked support from volume and may turn out to be false:

S&P500 Daily 2017
Click chart to enlarge.

That was proven correct. The strong downwards movement from the S&P comes on a day with an increase in volume. This is a classic downwards breakout.

When a downwards breakout has support from volume, that adds confidence in it. Downwards breakouts do not require support from volume; the market may fall of its own weight. Price can fall due to an absence of buyers as easily as it can from an increase in activity of sellers. But when volume supports downwards movement, it may be more sustainable, at least for the short term.

This downwards breakout was predicted by strongest volume during the consolidation being a downwards day.

This volume analysis technique looks at the presence or absence of support from volume on the breakout after a consolidation period to tells us how reliable the breakout may be.

Original post published @ 12:17 a.m. EST on 12th August, 2017, on Elliott Wave Gold.

Volume and Breakouts – Is it Necessary? | 9th August, 2017

After a consolidation price will break out. The presence or absence of support from volume on the breakout tells us how reliable the breakout may be.

Gold Daily 2017
Click chart to enlarge.

Pennant patterns are one of the most reliable continuation patterns. But in an upwards trend the breakout should have support from volume.

For price to keep rising it requires increased activity of buyers. Upwards breakouts that do not have support from volume are suspicious.

This upwards breakout comes on a day with slightly higher volume, but the balance of volume for the session is downwards. Stronger volume during the session supported downwards movement, not upwards.

The breakout is suspicious and may turn out to be false.

While volume is important for upwards breakouts, it is not so important for downwards breakouts. The market may fall of its own weight.

Original post published @ 04:47 p.m. EST on Elliott Wave Gold.

Non Farm Payroll – What Direction for the S&P500? | 3rd August, 2017

A simple classic technical analysis pattern may answer the question of what direction to expect tomorrow from the S&P500 upon release of Non Farm Payroll data. This release is expected to move markets strongly:.

Gold Daily 2017
Click chart to enlarge.

Pennants are reliable continuation patterns. The pattern is supported if volume declines as the pattern forms. Pennants normally appear about halfway within a trend.

The measured rule takes the flag pole which precedes the pattern and adds that length to the expected breakout of the pattern.

If this pattern is correct, then tomorrow may see an upwards breakout to new all time highs for the S&P500.

Original post published @ 06:28 a.m. EST on Elliott Wave Gold.