Select Page

Downwards movement was expected from both hourly Elliott wave counts.

Summary: The probability that the upwards wave is over and the next wave down has begun is very high indeed. If the bear wave count is right (and it is supported by technical analysis), the target for primary wave 3 is at 1,423. In the short term, a little upwards movement to about 2,073 may present a good opportunity to join the downwards trend at an excellent price.

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.



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 is complete and lasted 19 weeks. Primary wave 2 is either over lasting 28 weeks, or it may continue for another one or two weeks.

The long upper shadow on last week’s green weekly candlestick is bearish. Last week completes a bearish engulfing candlestick pattern.

Primary wave 2 may be complete as a rare running flat. Just prior to a strong primary degree third wave is the kind of situation in which a running flat may appear. 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.

It is possible but highly unlikely that primary wave 2 could yet move a little higher. If it does, then intermediate wave (C) should end above 2,116.48 to avoid a truncation. Primary wave 2 would then be a very common expanded flat.

Primary wave 2 may not move beyond the start of primary wave 1 above 2,134.72. When there is some price confirmation that primary wave 2 is over, then the invalidation point may be moved down to its end. Price is the ultimate determinator. This is the risk while we do not have final price confirmation.


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

If intermediate wave (C) is over, then the truncation is small at only 5.43 points. This may occur right before a very strong third wave pulls the end of intermediate wave (C) downwards. Price confirmation of a trend change would come with a new low below 2,039.74.

The next wave down for this wave count would be a strong third wave at primary wave degree. At 1,423 primary wave 3 would reach 2.618 the length of primary wave 1. This is the appropriate ratio for this target because primary wave 2 is very deep at 0.91 of primary wave 1. If this target is wrong, it may be too high. The next Fibonacci ratio in the sequence would be 4.236 which calculates to a target at 998. That looks too low, unless the degree of labelling is moved up one and this may be a third wave down at cycle degree just beginning. I know that possibility right now may seem absurd, but it is possible.

Alternatively, primary wave 3 may not exhibit a Fibonacci ratio to primary wave 1. When intermediate waves (1) through to (4) within the impulse of primary wave 3 are complete, then the target may be calculated at a second wave degree. At that stage, it may change or widen to a small zone.

Draw 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 have ended midway within the channel. The channel is now breached decisively at the daily chart level. This provides some reasonable confidence in a trend change.

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. At this stage, price may not move high enough to touch the dark blue trend line. It may find strong resistance at the cyan bear market trend line which is now just below 2,100. It looks like the typical throwback to resistance was quick and completed on the 28th of April.

Within minor wave 5, no second wave correction may move beyond the start of its first wave below 2,039.74. A new low below 2,039.74 could not be a second wave correction within minor wave 5, so at that stage minor wave 5 would have to be over. This would confirm a trend change.

Primary wave 1 lasted 98 days (not a Fibonacci number). Primary wave 2 may have lasted 140 days.


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

So far to the downside there is not a complete five wave impulse. Minor wave 1 still needs minute waves iv and v to complete.

Minute wave iii looks like it is extending. At 2,012 it would reach 2.618 the length of minute wave i. If this wave count is right, then this short term target may be met in a very few days.

Minuette wave (ii) is now a deep zigzag, close to the 0.618 Fibonacci ratio of minuette wave (i). Upwards movement may find resistance here at the upper edge of the channel which is now correctly termed an acceleration channel.

If minuette wave (ii) continues higher tomorrow, then it may find resistance at the bear market trend line which is copied over from the weekly and daily charts and now sits just below the round number of 2,100. At this stage, it looks unlikely as the downwards movement labelled subminuette wave i fits best as a five rather than a three on the five minute chart. This indicates it is more likely that minuette wave (ii) is complete.

Another first and second wave correction may now be completing. Subminuette wave i fits well as an impulse. Subminuette wave ii may move a little higher to begin tomorrow’s session (or after hours) to end closer to the 0.618 Fibonacci ratio at 2,073. If it is long enough in duration, then it may end when price again touches the upper edge of the pink channel.

At this stage, every time price comes up to touch the upper edge of the channel presents an opportunity to join the trend. For the more conservative and risk averse, stops may be set just above the high of minuette wave (ii) at 2,083.42. For the more risk tolerant, stops may be set just above 2,099.89.

When the middle of minor wave 1 has passed, then stops may be moved down to just above the lows of the first waves. A series of small fourth wave corrections should all remain below first wave price territory. The wave count is not there yet.

For those who are highly risk averse, then waiting for price confirmation below 2,039.74 is a viable option to reduce risk. The alternate will be invalidated once that price point is breached and more confidence in a downwards trend, at least short / mid term, may be had.

For those members who took yesterday’s trading advice and entered short, positions should now be profitable. Those members may like to consider moving stops to break even, because if price goes against the position here, then no loss would be incurred and a better entry point may be sought. If price moves strongly lower very soon as this analysis expects, then short positions should be held until targets are met or a trend line / channel is breached by upwards movement.


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

It is still just possible that primary wave 2 may not be complete. Intermediate wave (C) may yet be able to move above 2,116.48 to avoid a truncation and a rare running flat.

The degree of labelling within minor wave 5 is moved down one degree. The upwards wave to the last high may be only minute wave i within minor wave 5.

Minute wave ii may not move beyond the start of minute wave i below 2,039.74.

Minute wave ii is seen here as a double combination, but it no longer looks right. The second structure in the double is technically an expanded flat, which is okay. But it is deepening the correction, giving the whole structure of minute wave ii a downwards slope where it should be just sideways.

The first structure in the double labelled minuette wave (w) is a zigzag. The double is joined by a three, a simple zigzag in the opposite direction labelled minuette wave (x).

The second structure is an expanded flat labelled minuette wave (y). Both of subminuette waves a and b subdivide as threes, as they must for a flat. Subminuette wave b is a 1.21 length of subminuette wave a. This is over the requirement of 1.05 for an expanded flat, and within normal range of 1 to 1.38 for a B wave within a flat.

Subminuette wave c is a complete impulse and has no Fibonacci ratio to subminuette wave a.

This wave count requires a new high above 2,111.05 for confirmation. Classic technical analysis has reduced the probability of this wave count. The probability is low. Low probability is not the same as no probability; this wave count still illustrates the risk to any short positions here.

At the end of Tuesday’s session, the probability of this wave count is further reduced but not eliminated. The upwards waves labelled minuette wave (i) and subminuette wave i fit best as threes on the five minute chart, but this wave count must see them as fives. The downwards wave labelled minuette wave (i) fits best as a five and must be seen as a three. However, impulses and zigzags are very difficult to identify as one or the other with certainty. They can look very similar, so both options should be considered.



S&P 500 weekly 2016
Click chart to enlarge.

Within primary wave C downwards, 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.

This part of the structure is highly problematic for the bull wave count. It is not possible to see cycle wave IV as complete without a big problem in terms of Elliott wave structure.

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.


S&P 500 daily 2016
Click chart to enlarge.

If the bull market has resumed, it must begin with a five wave structure upwards at the daily and weekly chart level. That may today be complete. The possible trend change at intermediate degree still requires confirmation in the same way as the alternate hourly bear wave count outlines before any confidence may be had in it.

If intermediate wave (2) begins here, then a reasonable target for it to end would be the 0.618 Fibonacci ratio of intermediate wave (1) about 1,920. Intermediate wave (2) must subdivide as a corrective structure. It may not move beyond the start of intermediate wave (1) below 1,810.10.

In the long term, 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.



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

We have a bearish engulfing candlestick pattern at the end of last week. This has occurred at the round number of 2,100 which increases the significance. Volume on the second candlestick is higher than volume on the first candlestick, which further increases the significance. That it is at the weekly chart level is further significance.

Engulfing patterns are the strongest reversal patterns.

This is a very strong bearish signal. It adds significant weight to the expectation of a trend change. It does not tell us how low the following movement must go, only that it is likely to be at least of a few weeks duration.

There is a weak bearish signal from On Balance Volume at the weekly chart level with a break below the green line. A stronger bearish signal would be a break below the purple line. OBV looks bearish.

There is hidden bearish divergence between Stochastics and price at the last high and the high of November 2015. Stochastics has moved further into overbought territory, but this has failed to translate into a corresponding new high in price. Price is weak. MACD exhibits the same hidden bearish divergence.

After a period of declining ATR, it should be expected to turn and begin to increase.


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

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.

The support line is clearly and decisively breached. This strongly indicates the S&P has seen a trend change.

From the last high close to the round number at 2,100, there is volume support for falling price. Volume rises as price falls, and as price rises volume is lighter. Price today again fell on higher volume than the prior upwards day.

The two downwards days of 28th and 29th of April have stronger volume than all prior days back to 4th of March (excluding the options expiry day of 18th March). This again supports the idea of a trend change as there is clearly strong volume support for downwards movement.

Price broke below the support line and then had a quick throwback on 28th April. Price has now broken below the horizontal support line about 2,080 and is finding some resistance about there.

The next round number horizontal support line is added about 2,040. This area has previously provide support / resistance. It may do so again. If it does and a bounce is initiated from there, it would be another opportunity to join a downwards trend.

ADX is still declining indicating there is no trend currently. It has indicated a potential trend change as the +DX line crossed below the -DX line.

ATR is beginning to show some slow increase. This may be indicating the start of a new trend.

On Balance Volume gave a weak bearish signal with a break below the yellow line and now a retest of resistance there. This signal is weak because the line is steep, not long held and not often tested. A stronger bearish signal from OBV would come with a break below either the pink or purple lines.

RSI is neutral. There is plenty of room for price to fall.

Stochastics is just below neutral. There is plenty of room for price to fall.

MACD is showing some small increase in downwards momentum, but it has not yet built significantly.


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

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.


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

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.

Now the AD line is declining. The AD line today made a new low below the prior low a few days ago of 29th April. This indicates more stocks are declining than advancing. However, price failed to make a corresponding new low today. This indicates some weakness to downwards movement. It may be a warning that downwards movement may be interrupted short term.


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 has increased last week while long positions have decreased. 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.


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.

To the upside, DJIA has made a new major swing high above its prior major high of 3rd November, 2015, at 17,977.85. But DJT has so far failed to confirm because it has not yet made a new major swing high above its prior swing high of 20th November, 2015, at 8,358.20. Dow Theory has therefore not yet confirmed a new bull market. Neither the S&P500, Russell 2000 nor Nasdaq have made new major swing highs.

This analysis is published @ 10:34 p.m. EST.