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The target at 2,099 was reached on Friday.

Summary: The wave count now expects downwards movement from here. This is supported at the end of this week by classic technical analysis. A breach of the green channel on the hourly chart would be first confidence, and a new low below 2,058.35 would provide price confirmation. The short term target is at 1,911 and the long term target remains the same 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 is 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.

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
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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.

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.

Minor wave 2 fits perfectly as a very common expanded flat correction. Minute wave b is a 1.3 length of minute wave a, nicely within normal range of 1 to 1.38. Minute wave c is just 1.26 points short of 1.618 the length of minute wave a. After Friday’s upwards movement, minute wave c has a clear five wave look to it on the daily chart.

At 1,911 minor wave 3 would reach 2.618 the length of minor wave 1. This is the appropriate ratio to use for this target because minor wave 2 is very deep at 0.82 the length of minor wave 1.

Notice that the bear market trend line has been overshot before at the high labelled primary wave 2, so it may be overshot again.

Minor wave 2 may not move beyond the start of minor wave 1 above 2,111.05. This is the risk to short positions at this stage.

If any members are choosing to enter short positions here, then manage risk carefully: Do not invest more than 3-5% of equity on any one trade and always use a stop loss to contain losses.


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

Minor wave 2 may again be complete, but a trend change is unconfirmed. If minor wave 2 continues any higher, and it may, then it may not move beyond the start of minor wave 1 above 2,111.05.

Draw a channel about minute wave c using Elliott’s technique: draw the first trend line from the highs labelled minuette waves (i) to (iii), then place a parallel copy on the low labelled minuette wave (ii). When this channel is breached by downwards movement, it shall be indicating the end of minute wave c and the start of the next wave down. Risk must remain at 2,111.05 while price remains within the channel.

After the trend channel is breached to the downside, price may throwback to find resistance at the bear market trend line or the lower edge of the channel. If that is how price behaves, then short positions may be entered there with stops just above the end of minor wave 2 which at this stage is at 2,099.06.

A new low below 2,058.35 could not be a fourth wave correction within minute wave c, so at that stage the impulse of minute wave c would have to be over. A new low below 2,058.35 would provide strong price confirmation of a trend change.



S&P 500 weekly 2016
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Cycle wave IV is seen as a complete flat correction. Within cycle wave IV, primary wave C is still seen as a five wave impulse.

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.

Intermediate wave (2) may be an incomplete zigzag. Within the zigzag, minor wave B may now be a complete expanded flat. At 1,983 minor wave C would reach 1.618 the length of minor wave A. This ratio is used for this target because intermediate wave (2) should be expected to be relatively deep. If this target is wrong, it may not be low enough. The next likely target would be the 0.618 Fibonacci ratio at 1,920.

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 also a Three Black Crows pattern here on the weekly chart. The first three red weekly candlestick patterns are all downwards weeks. The pattern is not supported by increasing volume and only the third candlestick closes at or near its lows; these two points decrease the strength of this pattern in this instance. That the pattern occurs at the weekly chart level increases its strength.

This week completes a strong bullish candlestick, but it comes on declining volume. Price was not supported by volume although price managed to move substantially higher.

This pattern was seen back in July 2015 on this weekly chart. The week ending 13th of July, 2015, completed a strong bullish candlestick after a week immediately prior which completed a candlestick with a small real body and a long lower wick. The second candlestick there too came on declining volume. The following week managed to make a slight new high, but the advance of the bullish candlestick was fully retraced within two weeks.

The conclusion must be that this candlestick is bullish and would support more upwards movement. But the decline in volume is very concerning and indicates that if price does continue higher, it may not be by much.

On Balance Volume trend lines have been redrawn. OBV is constrained within two larger lines (green and orange). A break above the green line would be a strong bullish signal. A break below the orange line would be a strong bearish signal. OBV is constrained more short term between the two pink lines. The upper line may provide resistance; a break above it would be a weak bullish signal. The lower line has been tested and breached; this line is weak. A break below the lower pink line would be a weak bearish signal.

There is some long held divergence here between On Balance Volume and price. Between the last two major swing lows in price at the end of August 2015 and early February 2016, price made new lows but OBV made a higher low. This regular bullish divergence indicated the February low in price was weak. It was followed by a major upwards swing from price.

Now, from the major swing high for price in early November 2015 to the last major swing high in April 2016, price has made a lower high but OBV has made a higher high. Price cannot make a corresponding new high despite OBV making a new high. Price is weak. This hidden bearish divergence now supports the Elliott wave count.


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 comes on clearly declining volume as price rose to the high for Friday. The rise in price is not supported by volume, so it is not sustainable. Friday’s rise in price came with lightest volume for the last two months. The next lighter day is 28th March. This is to be expected before a holiday weekend.

Price may be expected to find strong resistance at the round number pivot of 2,100. Price has tested this number on four days in the last few months and each time price has moved downwards from this point. Each test strengthens resistance at the point. It would be reasonable to expect a downwards reaction from here.

ADX is increasing indicating the market is trending. The trend is up.

ATR is again however declining indicating the market is not trending. If this movement is a countertrend movement, then this disagreement between ADX and ATR makes sense.

On Balance Volume has come up to almost touch the yellow line. This may provide resistance. Although the yellow line has been breached before, if OBV moves higher, it may not be by much. There is some divergence between OBV and price at the daily chart level also: from the swing high of 10th of May to the last high for Friday 27th of May price has made a new high but OBV has made a lower high. This regular bearish divergence indicates weakness to upwards movement from price.

RSI is not yet extreme. There is room for price to rise further. There is no divergence between price and RSI to indicate weakness.

Stochastics has now reached overbought. If the market is range bound, then a downwards swing may be expected to begin from about here.


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.

There is now double negative hidden bearish divergence between price and VIX (pink lines). At the end of the week, VIX has made a new high above the prior swing high of 20th of April yet price has failed to make a corresponding new high. This indicates weakness in price. Volatility has declined below the point it was at on 20th of April, but this has failed to be translated into a corresponding rise in price.


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 prior 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.

There is now double hidden bearish divergence between price and the AD line at the end of this week (dark blue lines). The AD line has made a new swing high above the prior high of 20th of April. This increase in breadth to upwards movement has failed to translate into a corresponding rise in price. Price has failed to make a new high above 20th of April. This indicates weakness in price.


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.

To see some discussion of this primary degree third wave in video format click here.

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.

Put / Call ratios are added from data published at CBOE. This ratio is the index ratio published, not the ratio specifically for the S&P500. It should be a reasonable indicator of sentiment. Only values above 2 and below 1, extremes, are noted. A low P/C ratio indicates more long positions than short, so it is interpreted as bearish, a contrarian indicator. A high P/C ratio indicates more short than long positions, so it is interpreted as bullish, a contrarian indicator.

There were two instances where the P/C ratio gave a bullish extreme above 2 during primary wave 3. One instance happened right at the end of the middle of the third wave. My conclusion is that the P/C ratio may be a reasonable sentiment indicator, but it is not to be taken definitively. It should be one piece of information weighed up alongside other information. Currently, the index P/C ratio is not extreme. Only extremes will be noted.


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.

It is important to note here that traditional Dow Theory (using only DJT and DJIA) has confirmed a bear market and not confirmed the end of that bear market and the start of a new bull market. I would consider Dow Theory to be a solid and effective tool to determine overall market direction. This is another reason why I have little confidence in the alternate bullish Elliott wave count.

This analysis is published @ 07:00 p.m. EST on 28th May, 2016.