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The short term target on yesterday’s hourly chart was 2,103. This target was met.

The high for the session was 2,104.05, just 1.05 points above the target.

Summary: This is still a bear market rally until proven otherwise. A final fifth wave up is underway with a target just above 2,116.48. It may end this Thursday. The upwards trend is very weak. In the short term, tomorrow may see a fourth wave complete sideways and Thursday may be followed by the final upwards wave for the fifth wave.

To see last published monthly charts click here.

To see how each of the bull and bear wave counts fit within a larger time frame see the Grand Supercycle Analysis.

To see detail of the bull market from 2009 to the all time high on weekly charts, click here.

New updates to this analysis are in bold.

BEAR ELLIOTT WAVE COUNT

WEEKLY CHART

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

This bear wave count fits better than the bull with the even larger picture, super cycle analysis found here. It is also well supported by regular technical analysis at the monthly chart level.

Importantly, there is no lower invalidation point for this wave count. That means there is no lower limit to this bear market.

Primary wave 1 may be complete and may have lasted 19 weeks, two short of a Fibonacci 21. So far primary wave 2 has begun its 28th week. It looks unlikely to continue for another 6 weeks to total a Fibonacci 34, so it may end either this week or possibly early next week. This would still give reasonable proportion between primary waves 1 and 2. Corrections (particularly more time consuming flat corrections) do have a tendency to be longer lasting than impulses.

Primary wave 2 may be unfolding as an expanded or running flat. Within primary wave 2, intermediate wave (A) was a deep zigzag (which will also subdivide as a double zigzag). Intermediate wave (B) fits perfectly as a zigzag and is a 1.21 length of intermediate wave (A). This is within the normal range for a B wave of a flat of 1 to 1.38.

Intermediate wave (C) is likely to make at least a slight new high above the end of intermediate wave (A) at 2,116.48 to avoid a truncation and a very rare running flat. However, price may find very strong resistance at the final bear market trend line. This line may hold price down and it may not be able to avoid a truncation. A rare running flat may occur before a very strong third wave down.

If price moves above 2,116.48, then the new alternate bear wave count would be invalidated. At that stage, if there is no new alternate for the bear, then this would be the only bear wave count.

Primary wave 2 may not move beyond the start of primary wave 1 above 2,134.72.

DAILY CHART

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

Intermediate wave (A) fits as a single or double zigzag.

Intermediate wave (B) fits perfectly as a zigzag. There is no Fibonacci ratio between minor waves A and C.

Intermediate wave (C) must subdivide as a five wave structure. It is unfolding as an impulse.

Intermediate wave (C) does not have to move above the end of intermediate wave (A) at 2,116.48, but it is likely to do so to avoid a truncation. Price today is reasonably close to 2,116.48; if intermediate wave (C) ends here, it would be truncated by 12.43 points. A truncation of this size is still large, but not too large to be considered. The probability is still lower than the probability of price continuing higher.

The next wave down for this wave count would be a strong third wave at primary wave degree.

Minor wave 4 is a running contracting triangle. Extend the triangle trend lines out. The point in time at which they cross over sometimes sees a trend change; sometimes this is where the fifth wave to follow a fourth wave triangle ends. The point in time at which the triangle trend lines cross over is 21st April, this Thursday. This may be when primary wave 2 ends. This does not always work, but it works often enough to look out for it.

The target is for intermediate wave (C) to end just above the end of intermediate wave (A) at 2,116.48, so that a truncation is avoided.

Redraw the channel about the impulse of intermediate wave (C) using Elliott’s second technique: draw the first trend line from the ends of the second to fourth waves at minor degree, then place a parallel copy on the end of minor wave 3. Minor wave 5 may end midway within the channel. When this channel is breached by downwards movement, that will be the earliest indication of a possible end to primary wave 2.

Because expanded flats do not fit nicely within trend channels, a channel about their C waves may be used to indicate when the expanded flat is over. After a breach of the lower edge of the channel, if price then exhibits a typical throwback to the trend line, then it may offer a perfect opportunity to join primary wave 3 down. This does not always happen, so if it does in this case take the opportunity.

Within minor wave 5 no second wave correction may move beyond the start of its first wave below 2,039.74.

So far the structure of minor wave 5 still does not look like a completed five. More upwards movement is expected until it looks more typical on the hourly or daily chart. Along the way up, price is finding some resistance about the cyan bear market trend line. This looks like where minute wave iv will unfold. Tomorrow may produce a small doji or red candlestick, so that minute iv shows on the daily chart. Because the corresponding correction of minute ii shows on the daily chart, that would give minor wave 5 a clear five wave look to it.

Price may find final resistance and end upwards movement when it comes to touch the lilac trend line.

HOURLY CHART

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

The structure of minor wave 5 is still incomplete. So far it looks like a three, with the fourth and fifth waves yet to complete.

Minute wave ii lasted 12 hours and was a shallow 0.30 double zigzag. Minute wave iv may exhibit alternation as a flat, combination or triangle. It may be more shallow than minute wave ii. Minute wave iv may not move into minute wave i price territory below 2,087.84.

If minute wave iv is a flat correction, then within it minuette wave (b) must move higher so that it reaches a minimum 0.9 length of minuette wave (a) at 2,101.93. The normal length for a B wave within a flat is 1 to 1.38 the length of the A wave. This gives a normal range for minuette wave (b) between 2,104.05 to 2,107.87. A new high does not mean minute wave iv is over and would more likely to be a continuation of minute wave iv.

If minute wave iv is a triangle, then there is no minimum nor maximum requirement for minuette wave (b) within it. Minuette wave (b) may make a new high above the start of minuette wave (a) at 2,104.05 as in a running triangle. Minuette wave (b) of a triangle must be a corrective structure, most likely a zigzag.

If minute wave iv is a combination, then the first structure in the double combination may be a complete zigzag labelled minuette wave (w) which may be over at the low labelled minuette wave (a). The double would be joined by a three in the opposite direction labelled minuette wave (x). X waves within combinations have no minimum nor maximum length and may move beyond the start of the first structure in the double. The second structure may be either a flat or triangle for minuette wave (y) to move sideways and end about the same level as minuette wave (w) at 2,091.67.

Flats, triangles and combinations are all sideways structures. All three options expect overall sideways movement for several more hours. This would see minute wave iv in better proportion to minute wave ii, and it expects to see alternation in structure.

If price moves below 2,087.84, then it may not be minute wave iv as it would be back in first wave price territory. If this happens tomorrow, then the most likely scenario would be that minute wave iii is incomplete. The degree of labelling within minute wave iii would be moved down one degree, so only minuette wave (i) upwards would be complete. A second wave correction would then be expected to be unfolding which may not move beyond the start of the fist wave below 2,073.65.

Only a new low below 2,073.65 tomorrow would indicate a possible end to primary wave 2 at this stage.

Draw a channel about this upwards movement using Elliott’s technique: draw the first trend line from the ends of minute waves i to iii, then place a parallel copy on the end of minute wave ii. If sideways movement continues tomorrow as expected, then look for minute wave iv to find support at the lower edge of this pink channel.

When the end of minute wave iv is known, then a final limit for minute wave v can be calculated. Minute wave iii is shorter than minute wave i; it is just 0.67 points longer than 0.618 the length of minute wave i. Because a third wave may not be the shortest actionary wave, this will place a limit on minute wave v of no longer than equality with minute wave iii. This limit is likely to be about 2,122.

ALTERNATE WEEKLY CHART

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

Primary wave 1 may subdivide as one of two possible structures. The main bear count sees it as a complete impulse. This alternate sees it as an incomplete leading diagonal.

The diagonal must be expanding because intermediate wave (3) is longer than intermediate wave (1). Leading expanding diagonals are not common structures, so that reduces the probability of this wave count to an alternate.

Intermediate wave (4) may continue higher now and may find resistance at the bear market trend line.

ALTERNATE DAILY CHART

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

Within a leading diagonal, subwaves 2 and 4 must subdivide as zigzags. Subwaves 1, 3 and 5 are most commonly zigzags but may also sometimes appear to be impulses.

Intermediate wave (3) down fits best as a zigzag.

In a diagonal the fourth wave must overlap first wave price territory. The rule for the end of a fourth wave is it may not move beyond the end of the second wave.

Expanding diagonals are not very common. Leading expanding diagonals are less common.

Intermediate wave (4) must be longer than intermediate wave (2), so it must end above 2,059.57. This minimum has been met. The trend lines diverge.

The triangle is seen as minor wave B. Intermediate wave (4) now has a clearer three wave look to it.

The target at 2,098 has been passed and the structure of minor wave C is still incomplete. It must subdivide as a five wave structure. In the short term, the structure on the hourly chart for this upwards movement is the same for both bear wave counts: a fourth and final fifth wave are required to complete the impulse.

Leading diagonals may not have truncated fifth waves. Intermediate wave (5) would most likely be a zigzag, must end below 1,810.10, and must be longer in length than intermediate wave (3) which was 306.38 points.

BULL ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge.

Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV may be a complete shallow 0.19 regular flat correction, exhibiting some alternation with cycle wave II.

At 2,500 cycle wave V would reach equality in length with cycle wave I.

Price remains below the final bear market trend line. This line is drawn from the all time high at 2,134.72 to the swing high labelled primary wave B at 2,116.48 on November 2015. This line is drawn using the approach outlined by Magee in the classic “Technical Analysis of Stock Trends”. To use it correctly we should assume that a bear market remains intact until this line is breached by a close of 3% or more of market value. In practice, that price point would be a new all time high which would invalidate any bear wave count.

This wave count requires price confirmation with a new all time high above 2,134.72.

While price has not made a new high, while it remains below the final bear market trend line and while technical indicators point to weakness in upwards movement, this very bullish wave count comes with a strong caveat. I still do not have confidence in it. There is also some bearish divergence today between price and MACD at the daily chart level, indicating further weakness in this trend.

DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

Intermediate wave (2) is seen as an atypical double zigzag. It is atypical in that it moves sideways. Double zigzags should have a clear slope against the prior trend to have the right look. Within a double zigzag, the second zigzag exists to deepen the correction when the first zigzag does not move price deep enough. Not only does this second zigzag not deepen the correction, it fails to move at all beyond the end of the first zigzag. This structure technically meets rules, but it looks completely wrong. This gives the wave count a low probability.

If the bull market has resumed, it must begin with a five wave structure upwards at the daily and weekly chart level. So far that is incomplete.

At 2,160 minor wave 5 would reach equality in length with minor wave 1.

Within minor wave 5, no second wave correction may move beyond the start of its first wave below 2,039.74.

When minor wave 5 is complete, then the entire structure for intermediate wave (1) would be complete. A second wave correction for intermediate wave (2) would then be expected to move price substantially lower; second waves are most often deep, particularly the first second wave of a new trend as this one would be.

And so both bull and bear wave counts see an impulse almost complete upwards, which should be followed by some downwards movement. If the bear wave count is wrong and this bull wave count is right, then any shorts entered would have an opportunity to exit at break even or maybe even a small profit on intermediate wave (2) down.

This wave count absolutely requires a new high above 2,134.72 for confirmation. This would be the only wave count in the unlikely event of a new all time high. All bear wave counts would be fully and finally invalidated.

TECHNICAL ANALYSIS

DAILY CHART

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

Volume data on StockCharts is different to that given from NYSE, the home of this index. Comments on volume will be based on NYSE volume data when it differs from StockCharts.

Price has been trending upwards for 46 days. The 13 day moving average is mostly showing where downwards corrections are finding support. It looks like a small pennant pattern has completed and is followed by an upwards breakout with a gap and an increase in volume. The trend has resumed after a few days of consolidation.

The gap has not been closed within a few days, so now it looks like a breakaway gap from the small pennant pattern.

Price found resistance and then support at the horizontal trend line about 2,080 and has bounced up from there. Price today is finding some resistance about the round number of 2,100, to close almost right at this point.

Volume for Tuesday shows some increase; there was support for upwards movement of Tuesday. This supports the Elliott wave counts which see this upwards day as the end of a third wave. Third waves should show some increase in volume and / or momentum. Also, they should show some strength.

As price moves upwards, it comes still overall with declining volume. The trend is weak. It is not supported by volume, so is unsustainable.

ADX is rising indicating the upwards trend has returned. ATR no longer supports ADX. ATR is declining.

ATR declined for most of this upwards trend. This is not normal for a trend and it indicates weakness.

On Balance Volume is giving a clear bullish signal, albeit a rather weak one. The clear break above the upper purple trend line supports the Elliott wave count short term in expecting more upwards movement. The signal is weak because the line is short held and only tested twice. However, it is close to horizontal, so it has some technical significance. OBV turned lower to test the upper purple line and has moved away, so the strength of that line is now reinforced.

OBV needs to break below the pink line for OBV to give a strong bearish signal, but before that happens breaks below the purple lines would provide weak bearish signals.

RSI has not managed to reach overbought during this trend. Price made a new high today within this current trend yet RSI has still not made a corresponding new high. There is now divergence between price and RSI indicating weakness in price.

Stochastics also shows divergence with price. This also is indicating price is weak.

INVERTED VIX DAILY CHART

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

Volatility declines as inverted VIX climbs. This is normal for an upwards trend.

What is not normal here is the divergence over a reasonable time period between price and inverted VIX (green lines). The decline in volatility is not translating to a corresponding increase in price. Price is weak. This divergence is bearish.

Price made a new short term high, but VIX has failed to make a corresponding high (pink lines). This is regular bearish divergence. It indicates further weakness in the trend.

BULLISH PERCENT DAILY CHART

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

With this indicator measuring the percentage of bullish equities within the index, it is a measurement of breadth and not sentiment as the name suggests.

There is strong hidden bearish divergence between price and the Bullish Percent Index (orange lines). The increase in the percentage of bullish equities is more substantial than the last high in price. As bullish percent increases, it is not translating to a corresponding rise in price. Price is weak.

As price made a new short term high today, BP did not (pink lines). This is regular bearish divergence. It indicates underlying weakness to the upwards trend.

ADVANCE DECLINE LINE

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

With the AD line increasing, this indicates the number of advancing stocks exceeds the number of declining stocks. This indicates that there is breadth to this upwards movement.

From November 2015 to now, the AD line is making new highs while price has so far failed to make a corresponding new high. This indicates weakness in price; the increase in market breadth is unable to be translated to increase in price.

It remains to be seen if price can make new highs beyond the prior highs of 3rd November, 2015. If price can manage to do that, then this hidden bearish divergence will no longer be correct, but the fact that it is so strong at this stage is significant. The AD line will be watched daily to see if this bearish divergence continues or disappears.

The 200 day moving average for the AD line is now increasing. This alone is not enough to indicate a new bull market. During November 2015 the 200 day MA for the AD line turned upwards and yet price still made subsequent new lows.

COMMITMENT OF TRADERS (COT)

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

This first COT chart shows commercials. Commercial traders are more often on the right side of the market. Currently, more commercials are short the S&P than long. This supports a bearish Elliott wave count, but it may also support the bullish Elliott wave count which would be expecting a big second wave correction to come soon. Either way points to a likely end to this upwards trend sooner rather than later. Unfortunately, it does not tell exactly when upwards movement must end.

*Note: these COT figures are for futures only markets. This is not the same as the cash market I am analysing, but it is closely related enough to be highly relevant.

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

Non commercials are more often on the wrong side of the market than the right side of the market. Currently, non commercials are predominantly long, and increasing. This supports the expectation of a trend change soon.

DOW THEORY

I am choosing to use the S&P500, Dow Industrials, Dow Transportation, Nasdaq and the Russell 2000 index. Major swing lows are noted below. So far the Industrials, Transportation and Russell 2000 have made new major swing lows. None of these indices have made new highs.

I am aware that this approach is extremely conservative. Original Dow Theory has already confirmed a major trend change as both the industrials and transportation indexes have made new major lows.

At this stage, if the S&P500 and Nasdaq also make new major swing lows, then my modified Dow Theory would confirm a major new bear market. At that stage, my only wave count would be the bear wave count.

The lows below are from October 2014. These lows were the last secondary correction within the primary trend which was the bull market from 2009.

These lows must be breached by a daily close below each point.

S&P500: 1,821.61
Nasdaq: 4,117.84
DJIA: 15,855.12 – close below on 25th August 2015.
DJT: 7,700.49 – close below on 24th August 2015.
Russell 2000: 1,343.51 – close below on 25th August 2015.

This analysis is published @ 12:05 p.m. EST on 20th April, 2016.