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Downwards movement for Wednesday’s session fits what was expected as most likely for the hourly Elliott wave count in last analysis.

Summary: A five down on the daily chart is complete. The following upwards correction is more likely incomplete, so it is more likely price will move higher for one or two days. This outlook would have confidence if price can make a new high tomorrow above 2,074.79. The target for the upwards correction to end is at 2,094. The bear market trend line should offer very strong resistance and risk is at 2,111.05. A less likely possibility (but one which has important implications and so must be kept in mind) is that the correction was over at yesterday’s high and a third wave down may increase momentum tomorrow.

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. 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 last 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 minor wave 2 upwards now and copy it over to the hourly chart. After some upwards movement, a subsequent breach to the downside of this small channel would confirm a trend change and a resumption of the new downwards trend for primary wave 3.

At this stage, if minor wave 2 has one or two more days of upwards movement to print one or two green daily candlesticks, then it would have a clear three wave counter trend look at the daily chart level. It does not have to do this, but this would give the most typical look. Another test of the bear market trend line, if that happens, should be taken as a gift from the market to enter low risk high probability short positions with an exceptionally good risk / reward ratio.

The equivalent minor wave 2 within the last big bear market was a 0.495 depth of minor wave 1 and lasted two days to minor wave 1’s five days.

The next possible equivalent minor wave 2 lasted one day longer than its minor wave 1 and was very deep at 0.81.

Overall, it is impossible to tell with certainty how deep and long lasting this minor wave 2 will be. Look out for possible surprises to the downside with a big third wave in its infancy.

Minor wave 1 lasted 12 days, one short of a Fibonacci 13. So far minor wave 2 has lasted only three days. The risk today is still that it could be over yesterday.

Minor wave 2 may not move beyond the start of minor wave 1 above 2,111.05.

Today I will publish three hourly wave counts in order of probability.


S&P 500 daily bear 2016
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At this stage, it looks most likely that minor wave 2 is not over and may continue higher as a double zigzag.

This wave count is slightly more likely than the other two because it expects minor wave 2 to be longer lasting and a clear three wave structure at the daily chart level. This wave count would have better proportion.

Early second wave corrections, even within a primary degree third wave, can be very deep. They don’t have to be, but they can certainly be. Another test of the bear market trend line would be typical behaviour.

At 2,094 minute wave y would reach 0.618 the length of minute wave w.

Double zigzags are very common structures. They should have a clear slope against the prior trend. To achieve this look the X waves within double zigzags are normally relatively quick and shallow.

Minor wave 2 may not move beyond the start of minor wave 1 above 2,111.05.


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

Minor wave 2 may continue as a flat correction. There is no lower invalidation point for this wave count because within a flat minute wave b may move below the start of minute wave a. The most common type of flat is an expanded flat where minute wave b would reach 1.05 the length of minute wave a at 2,037.18 or below.

Most unfortunately this wave count is valid and expects a very common structure. This means there is no lower price point which will confirm that minor wave 2 is over and minor wave 3 is underway.

If minor wave 2 continues further as a flat correction, then it would be labelled minute waves a-b-c. Minute wave b would have a common range of 1 to 1.38 the length of minute wave a giving a range for it to end from 2,039.45 to 2,022.19. Minute wave b must be a three wave structure and would most likely exhibit divergence in momentum and volatility with the low of minor wave 1. It could see a new low below 2,039.45 with weaker momentum and weaker volatility than the end of minor wave 1. Downwards movement must subdivide as a three.

Thereafter, minute wave c would be expected to make a new high above minute wave a at 2,084.87 to avoid a truncation. It would most likely end about the bear market trend line.


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

Finally, it is possible that minor wave 2 is over as a zigzag correcting to 0.634 the length of minor wave 1, very close to the 0.618 Fibonacci ratio.

The only thing which does not look perfect about this wave count is the duration and proportion of minor wave 2 to minor wave 1. A longer lasting correction for minor wave 2 would have a more typical look at the daily and hourly chart level.

If members’ own technical analysis favours this wave count, then this is the count which should be used. This wave count illustrates the possibility of a swift strong downwards movement in the next few sessions.

A new low below the end of minor wave 1 at 2,039.45 should be made with a five wave structure down for minute wave i, and would be most likely to exhibit stronger momentum than the low of minor wave 1. Volatility should also show an increase.

Within minute wave i downwards, tomorrow a small fourth wave correction for minuette wave (iv) may not move into minuette wave (i) price territory above 2,074.79 (taken from the five minute chart). A new high short term above 2,074.79 would invalidate this wave count and confirm the first wave count.

At 1,969 minor wave 3 would reach 1.618 the length of minor wave 1. If this target is met and the structure is incomplete, or if price keeps falling through the first target, then the second target should be used. At 1,897 minor wave 3 would reach 2.618 the length of minor wave 1.

The dark blue channel is a base channel about minor waves 1 and 2. The first indication that this wave count is wrong would come with a breach of the upper edge of the base channel. If minor wave 3 is underway, then within it corrections should find strong resistance at the upper edge of the base channel.

A breach of the lower edge of the base channel would be strong confirmation of this wave count.

Within minor wave 3, no second wave correction may move beyond the start of its first wave above 2,084.87.



S&P 500 weekly 2016
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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
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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 last 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. This slightly supports the first two hourly wave counts over the second. For the weekly OBV line to move up from here requires a longer lasting correction.

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.

As price rose for three days in a row, from the last low, it came with declining volume. Price today has fallen on increased volume, but the volume for today’s downwards day is lighter than the last five downwards days. In the short term, volume indicates that upwards movement is a small counter trend rally, and today’s downwards movement is strong but not yet strong enough to be seen as the resumption of a downwards trend.

Today technically may be seen as a bearish harami candlestick pattern, but the second body of the pattern is not small. It is within the body of the first pattern, but two things indicate that this potential reversal pattern does not have much strength. It has not come after a reasonable rise but only with a small counter trend rise of three days. The body of the second candlestick is only slightly smaller than the first. Overall, I would not give much weight to this pattern.

More weight should be given to the bullish engulfing pattern at the last low. However, this indicates a trend reversal but does not indicate how high following upwards movement should go.

ADX is still declining indicating that the market is not currently trending. This is a lagging indicator though as it is based on a 14 day average. During a consolidation, the +DX and -DX lines fluctuate about each other. Currently, an upwards trend would be indicated if the ADX line increases, but with the directional lines so close together this could change quickly.

ATR agrees with ADX as it is flat.

On Balance Volume has tested the yellow line and moved away. This supports the idea of upwards movement being over for now, but there are two problems with this view. It may support both the second and third hourly wave counts; the second could see more downwards movement for OBV to again test the purple line, then another wave up for OBV to again test the yellow line. The third hourly wave count could see OBV move lower here and slice through the purple line. Both outlooks are equally valid from OBV. The other problem is the yellow line is not very long held and has been breached before, so it could be breached again. It does not offer strong technical resistance.

A breach of any of the purple, pink or green lines by OBV would be a strong bearish signal. At that stage, a third wave down would be expected to be underway.

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

Stochastics is close to neutral.

MACD is flattening off as would be expected during a counter trend movement.


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.

Inverted VIX yesterday made a new high above the prior swing high of 27th April, but price has failed to make a corresponding new high. This indicates that volatility declined to below the prior point on 27th April, but this decline in volatility has not translated into a corresponding increase in price. Price again is weak.

Upwards rallies continue to exhibit persistent weakness.


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 20th April, the AD line made new highs while price 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.

For three days in a row price increases while the AD line also increases. There is breadth to this upwards movement.


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.

Looking more closely at early corrections within primary wave 3 to see where we are, please note the two identified with orange arrows. Minor wave 1 lasted a Fibonacci 5 days and minor wave 2 was quick at only 2 days and shallow at only 0.495 the depth of minor wave 1.

Minute wave ii, the next second wave correction, was deeper. Minute wave i lasted 3 days and minute wave ii was quick at 2 days but deep at 0.94 the depth of minute wave i.

What this illustrates clearly is there is no certainty about second wave corrections. They do not have to be brief and shallow at this early stage; they can be deep.

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 @ 10:09 p.m. EST.