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A small green candlestick or a doji were expected for Friday’s session. Friday completes a small green candlestick.

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. Monday may see the session begin with a little upwards movement to a short term target at 2,063, and then a fifth wave down to new lows that may be about 33.53 points in length.

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.

An expectation for duration of primary wave 3 would be for it to be longer in duration than primary wave 1. If it lasts about 31 weeks, it would be 1.618 the duration of primary wave 1. It may last about a Fibonacci 34 weeks in total, depending on how time consuming the corrections within it are.

At the last high in April, the weekly candlestick has a long upper shadow which is bearish. The next candlestick completes a bearish engulfing pattern. That pattern is now followed by another downwards week, so it is reinforced.

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.

Within primary wave 3, no second wave correction may move beyond its start above 2,111.05.


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. At the end of this week, price has confirmed a trend change with a new low slightly 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 a small channel about the new downwards movement using Elliott’s first 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. The upper edge may show where minute wave iv finds resistance, and the downwards edge may show where minute wave v finds support.

Once there is some downwards movement for minute wave v, a subsequent breach of the upper edge of the channel would indicate that the impulse for minor wave 1 would be over and the following correction for minor wave 2 may have begun. Minor wave 2 may be deep. The equivalent minor wave 2 within the last big bear market was a 0.81 depth of minor wave 1 and it lasted one day longer than minor wave 1.

For this upcoming minor wave 2, the expectation should be for it to be deep and either even in duration or longer in duration than minor wave 1. Minor wave 2 may be deep enough to find resistance at the bear market trend line. This line should now offer very strong resistance; I would not expect price to break above it.


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

Minute wave iii is just 0.09 points longer than 1.618 times the length of minute wave i. Minute wave iii shows an increase in momentum beyond minute wave i, and the strongest part is the middle of the third wave.

A channel drawn using Elliott’s first technique sees the middle of the third wave overshoot the lower edge. This looks typical. The upper edge of the channel may show where minute wave iv finds resistance.

Minute wave ii was a deep 0.67 double zigzag correction. Given the guideline of alternation, minute wave iv may be expected to be more shallow and a sideways type of correction such as a flat, combination or triangle. At this stage, all three options are still technically open.

So far within minute wave iv the first wave of minuette wave (a) fits as a three on the five minute chart. Minuette wave (b) also fits as a three (a double zigzag) on the five minute chart. This downwards wave will not fit well as a five. Minuette wave (b) is a 1.41 length of minuette wave (a). This is slightly longer than the common range of 1 to 1.38, but within the allowable convention of up to 2.

At 2,063 minuette wave (c) would reach 1.618 the length of minuette wave (a) and minute wave iv may complete as an expanded flat correction. An expanded flat correction may end on Monday, and it may be quick.

But minute wave iv does not have to complete as an expanded flat. This is most likely because they are very common structures, but it is not the only possibility.

Minute wave iv may continue sideways in an ever decreasing range as a running contracting triangle. If this structure unfolds, it may be time consuming, lasting another two or even three sessions.

Minute wave iv may continue sideways as a double combination. The structure would be relabelled minuette waves (w), (x) and (y). Minuette wave (y) would be underway and may complete as either a flat or triangle.

Minute wave iv may not move into minute wave i price territory above 2,077.52.

Stops may be set just above this invalidation point at this stage.

Minute wave ii lasted for two days producing two small green daily doji. Minute wave iv may be expected to last another one to three days to maybe produce another one to three doji or small green candlesticks.

At this stage, a target for minute wave v downwards to complete the impulse of minor wave 1 cannot be calculated because it is not known where it starts. Minute wave v is most likely to be equal in length with minute wave i at 33.53 points.

The S&P can behave like a commodity during its bear markets in that it can exhibit swift strong fifth waves. However, this behaviour is seen more often for third wave impulses (the fifth wave to end the third is swift and strong) and during the last bear market did not show up until the middle to end of the whole bear market. I would not necessarily expect this tendency to show up here for minute wave v, but it is a possibility to be aware of.



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

There is a bearish engulfing candlestick pattern at the last high. 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.

Now this pattern is followed by another red weekly candlestick. The reversal implications of the pattern are confirmed.

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. At the end of this week, OBV has come down to almost touch the purple line. Some support may be expected about here, so this may prompt minor wave 2 to bounce higher.

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.

Price is finding support about the horizontal line at 2,040. A bounce up from here may be expected to find resistance at the next line about 2,070.

During this week, the two lightest volume days are both upwards days. Although volume declined while price fell for three days this week, volume for Friday’s upwards day is lighter still. The rise in price is not supported by volume, so the rise should be suspicious. It is more likely to be a counter trend movement. The volume profile continues to support the bearish wave count.

ADX is above 15 and increasing. The -DX line is above the +DX line. ADX indicates a downwards trend is in place.

ATR still disagrees at the end of the week. It is flat to declining. Some disagreement between ADX and ATR at the beginning of a new trend may be accepted.

On Balance Volume has found support and moved upwards from the strong purple line. If OBV turns back down and breaks below the purple line, then it should be expected to find support at the pink line. These support lines on OBV may serve to hold up price, albeit temporarily. Minute wave v may end when OBV finds support at the pink line. It may not be until the power of minor wave 3 arrives that OBV can break below these two strong support lines.

RSI is neutral. There is room for price to rise or fall.

Stochastics is just reaching into oversold. This oscillator may remain extreme for reasonable periods of time during a trending market.

Price may find resistance about the 13 day moving average while price is in a downwards trend, although often in the early stages of a new trend this line is overshot with the first correction.

MACD shows downwards movement is increasing in downwards momentum.


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 (orange lines).

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.

The AD line is now declining and has breached a support line (cyan). There is breadth to downwards movement; more stocks are declining than advancing which supports the fall in price.


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.

At the end of this week, commercials have decreased short positions and slightly increased long positions, but overall they remain more short than long. This still supports a bearish Elliott wave count. A bounce for minor wave 2 may be anticipated by the commercials.

*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.

At the end of this week, non commercials have strongly increased short positions and less strongly decreased long positions. They remain overall long.


Bear Market 2007 - 2009
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In looking back to see how a primary degree third wave should behave in a bear market, the last example may be useful.

Currently, the start of primary wave 3 now may be underway for this current bear market. Currently, ATR sits about 19. With the last primary degree third wave (blue highlighted) having an ATR range of about 18 to 76, so far this one looks about right.

The current wave count sees price in an intermediate degree first wave within a primary degree third wave. The equivalent in the last bear market (yellow highlighted) lasted 39 days and had a range of ATR from 16 – 27.

Bear Market 2007 - 2009
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This chart is shown on an arithmetic scale, so that the differences in daily range travelled from the start of primary wave 3 to the end of primary wave 3 is clear.

Primary wave 3 within the last bear market from October 2007 to March 2009 is shown here. It started out somewhat slowly with relatively small range days. I am confident of the labelling at primary degree, reasonably confident of labelling at intermediate degree, and uncertain of labelling at minor degree. It is the larger degrees with which we are concerned at this stage.

During intermediate wave (1), there were a fair few small daily doji and ATR only increased slowly. The strongest movements within primary wave 3 came at its end.

It appears that the S&P behaves somewhat like a commodity during its bear markets. That tendency should be considered again here.

This chart will be republished daily for reference. The current primary degree third wave which this analysis expects does not have to unfold in the same way, but it is likely that there may be similarities.


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 @ 04:38 a.m. EST on 7th May, 2016.