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Upwards movement was expected as most likely for Thursday’s session. Price moved lower but not conclusively; a red doji candlestick was printed.

The situation short term remains unclear. The Elliott wave count mid / long term still looks right.

Summary: It is still somewhat more likely that tomorrow will see downwards movement to at least 2,043.77, then upwards movement to above 2,084.87 the next one to three days. Overall, it is still more likely that a second wave correction will continue sideways / higher for a few days. However, it is also entirely possible that a third wave down is in the very early stages. Look out for surprises to the downside. The larger picture is still clear: primary wave 3 looks like it is in its infancy. The target remains at 1,423.

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 over lasting 28 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 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.

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 four days. The risk today is still that it could be over.

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

A short term bear market trend line is added from the high of primary wave 2 to the first small swing high of minute wave ii in cyan. This trend line is about where price is finding resistance. It is copied over to the first alternate hourly chart and the daily technical analysis chart.

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


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

The most likely wave count for the short term picture would be a flat correction continuing higher for minor wave 2.

This would see minor wave 2 better in proportion to minor wave 1 and a clear three wave structure on the daily chart. This would have the most typical look.

Within a flat correction, minute wave a must subdivide as a three. Minute wave a fits as a zigzag.

Within a flat correction, minute wave b must also be a three. It too is subdividing as a simple zigzag. Minute wave b must reach down to a minimum 0.9 length of minute wave a at 2,043.77.

The most common type of flat is an expanded flat. That requires minute wave b to be 1.05 the length of minute wave a or longer at 2,037.18.

The common range for minute wave b within the flat is from 1 to 1.38 the length of minute wave a giving a range from 2,039.45 to 2,022.19.

A new low below the end of minor wave 1 is fairly likely for this wave count, but it would not confirm for us that minor wave 2 is over and minor wave 3 is underway.

When the next five down for minuette wave (c) is complete, then the price point which will differentiate this main hourly wave count from the second alternate below is 2,053.13. A new high above that point at that stage would confirm this main hourly wave count and invalidate the second alternate below.

When minute wave b downwards has met its minimum requirement at 2,043.77, then look for a complete five for minuette wave (c). Look out for a trend change as soon as that may be complete. A breach of the upper edge of the channel about minute wave b (drawn in green) would provide trend channel confirmation that minute wave b is over and minute wave c upwards is underway.

When the end of minute wave b is known, then a target for minute wave c may be calculated. That cannot be done today. Minute wave c looks likely to find strong resistance at the bear market trend line. Minute wave c would be very likely to make a new high above the end of minute wave a at 2,084.87 to avoid a truncation.

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

Within a flat correction, there is no rule stating a maximum limit in length for a B wave. There is a convention within Elliott wave which states that when the potential B wave reaches twice the length of the potential A wave the idea of a flat unfolding is so low it should be discarded. That price point would be at 1,994.03 which is too low to be of much use practically.


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

Minor wave 2 may be over. With a five down and now a three up on the hourly chart today, this idea must be understood to be entirely possible. The implications are important.

At 1,969 minor wave 3 would reach 1.618 the length of minor wave 1. If when price gets to the first target minor wave 3 is an incomplete structure, or if price just keeps falling through the first target, then the next target is at 1,897 where minor wave 3 would reach 2.618 the length of minor wave 1.

Minor wave 2 is a deep 0.634 zigzag. The only problem with it is the proportion: it lasted just two days if it is over here compared to the 12 days duration for minor wave 1.

Minute wave i fits perfectly as an impulse. Minute wave ii may now be complete as a zigzag. It does look like a three on the hourly chart and it has corrected close to the 0.618 Fibonacci ratio of minute wave i.

If minute wave ii continues higher tomorrow, then it may not move beyond the start of minute wave i above 2,084.87.

If this wave count is correct, the important implication is an increase in downwards momentum over the next few days, which should start tomorrow.

The dark blue channel is a base channel about minor waves 1 and 2. Draw the first trend line from the start of minor wave 1 to the high labelled minor wave 2, then place a parallel copy on the low labelled minor wave 1. Along the way down, lower degree corrections should find resistance at the upper edge of the base channel. When the base channel is breached by downwards movement, that is strong confirmation that a third wave down is underway. Third waves should have the power to break below base channels.

When the next five down is complete, then it may be minute wave iii. At that stage, the invalidation point for this alternate will move down to the low of minute wave i at 2,053.13. The following small correction for minute wave iv may not move back up into minute wave i price territory. At that stage, the price point of 2,053.13 will differentiate this bearish wave count from the main hourly wave count.


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

It is also possible that minor wave 2 may continue sideways as a double combination.

The downwards wave labelled minute wave x looks like an incomplete three. Because it needs to move lower to complete, when it is done it will be a relatively deep correction in relation to the wave up labelled minute wave w. Double combinations normally have deep X waves. Double zigzags normally have shallow and brief X waves. This X wave is now too deep to have a typical look for a double zigzag, so that idea is discarded.

Both double zigzags and double combinations are labelled W-X-Y, but they are very different structures. Double zigzags are part of the zigzag family and should have a clear slope against the prior trend. Double combinations are part of the flat kind of family and should have an overall sideways look. There may be no more than one zigzag in a double or triple combination.

Within a double combination, the second structure exists to take up time and move price sideways (which is the same purpose of triangles). To achieve this purpose the second structure in the double should end about the same level as the first structure.

If minute wave y is time consuming enough, then it may be able to end very close to or possibly touching the bear market trend line. Minute wave y would most likely be a flat, but it may also be a triangle.

The target for minute wave x to end is very short term. At 2,051 minuette wave (c) would reach 0.618 the length of minuette wave (a).

There is no rule stating a maximum length for an X wave within a combination. X waves within combinations may make new price extremes beyond the start of the correction, and are reasonably likely to do so. The same principle of B waves within flats will be applied. When downwards movement reaches 1,994.03 or below, then minute wave x would be twice the length of minute wave w, so this idea should be discarded based upon a very low probability.



S&P 500 weekly 2016
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The bull wave count is altered slightly today in response to Peter’s charts and ideas. Cycle wave IV is still seen as a complete flat correction. Within cycle wave IV, primary wave C is still seen as a five wave impulse.

The change is in intermediate waves (2) and (3). Intermediate wave (2) is seen as complete earlier resolving the prior problem of its structure. Now it is a single simple zigzag which fits. Intermediate wave (3) begins earlier.

Now intermediate wave (3) has a strong three wave look to it on the weekly and daily charts. For the S&P, a large wave like this one at intermediate degree should look like an impulse at higher time frames. The three wave look substantially reduces the probability of this wave count. Subdivisions have been checked on the hourly chart, which will fit.

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.

The invalidation point will remain on the weekly chart at 1,370.58. Cycle wave IV may not move into cycle wave I price territory.

This invalidation point allows for the possibility that cycle wave IV may not be complete and may continue sideways for another one to two years as a double flat or double combination. Because both double flats and double combinations are both sideways movements, a new low substantially below the end of primary wave C at 1,810.10 should see this wave count discarded on the basis of a very low probability long before price makes a new low below 1,370.58.


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 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 main and second alternate hourly wave counts over the first alternate. 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 overall moved lower and volume has slightly increased. There is support for the fall in price from volume. However, volume today remains lighter than the prior downwards days to the last low on 6th May. The volume profile continues to be bearish.

A new bear market trend line is added to this daily chart in blue. Price is finding resistance at this trend line so far.

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, a downwards 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 overall 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 main hourly and second alternate hourly wave counts; the main hourly wave count 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 first alternate 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 did not translate to a corresponding increase in price. Price is weak. This divergence is bearish.

Inverted VIX has moved higher today indicating a decline in volatility. But price moved overall lower to complete a red daily candlestick. This is some small interday regular bearish divergence. It indicates the bears were weak during the session. The bears could not increase volatility for the session despite a new low in price and overall downwards movement. This is some small support for the main hourly wave count.


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
Click to enlarge.

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 @ 11:14 p.m. EST.