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A bounce was again expected for Tuesday but did not happen.

Summary: The trend is down; look out for surprises to the downside. There is now enough technical indication of a trend change for a short position to be entered. Corrections are an opportunity to join the trend. In the short term, a small multi day bounce may begin tomorrow or in a few days time. It should find strong resistance at the lower edge of the black channel on the daily chart, and at the cyan trend line.

Trading advice (not intended for more experienced members): Short positions entered above 2,100 should at least have stops moved to break even if not a little below. Position traders holding short positions opened reasonably above 2,100 may like to hold onto those; 2,100 should offer strong resistance now for any bounce.

Looking at the bigger picture, any short positions entered here should be profitable within a week and may still offer a very good risk / reward set up. However, any members entering short here must understand there is a risk the position may be underwater for several days before becoming profitable. With that in mind, it is essential to manage risk: no more than 2-3% of equity should be risked if entering short here.

Choosing to be patient and wait may offer a better entry but runs the risk of missing a strong downwards movement. On balance, it is my judgement that price will bounce up for a reaction to test the trend line, so I will not be adding to my short position until that happens. If I did not yet have a short position, I may choose to enter a small position here and wait for a bounce to enter another slightly larger position at the high.

Stops (and risk) must be just above 2,120.55

Last published monthly charts are here.

New updates to this analysis are in bold.



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

The box is added to the weekly chart. Price has been range bound for months. A breakout will eventually happen. The S&P often forms slow rounding tops, and this looks like what is happening here at a monthly / weekly time frame.

Primary wave 1 is seen as complete as a leading expanding diagonal. Primary wave 2 would be expected to be complete here or very soon indeed.

Leading diagonals are not rare, but they are not very common either. Leading diagonals are more often contracting than expanding. This wave count does not rely on a rare structure, but leading expanding diagonals are not common structures either.

Leading diagonals require sub waves 2 and 4 to be zigzags. Sub waves 1, 3 and 5 are most commonly zigzags but sometimes may appear to be impulses. In this case all subdivisions fit perfectly as zigzags and look like threes on the weekly and daily charts. There are no truncations and no rare structures in this wave count.

The fourth wave must overlap first wave price territory within a diagonal. It may not move beyond the end of the second wave.

Leading diagonals in first wave positions are often followed by very deep second wave corrections. Primary wave 2 would be the most common structure for a second wave, a zigzag, and fits the description of very deep. It may not move beyond the start of primary wave 1 above 2,134.72.

So far it looks like price is finding resistance at the lilac trend line. Price has not managed to break above it.


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

So far primary wave 2 would be a 0.96 correction of primary wave 1. Second wave corrections following first wave leading diagonals are commonly very deep, so this fits the most common pattern if primary wave 1 was a leading diagonal.

The most common structure for a second wave correction is a zigzag.

There is still no Fibonacci ratio between intermediate waves (A) and (C).

Draw a channel about primary wave 2 using Elliott’s technique for a correction: draw the first trend line from the start of the zigzag, then a parallel copy on the end of intermediate wave (A).

Intermediate wave (C) is a complete impulse and primary wave 2 is a complete zigzag. Today completes a full daily candlestick below the wide black channel and not touching the lower edge. This provides some further confidence that primary wave 2 is over.

If intermediate wave (C) was over, then it would have lasted a Fibonacci thirteen days. Intermediate wave (B) lasted a Fibonacci twenty-one days and intermediate wave (A) lasted forty seven days (not a Fibonacci number). Primary wave 2 would have lasted eighty one days (also not a Fibonacci number). If primary wave 3 exhibits a Fibonacci duration, then a reasonable estimate would be a Fibonacci 144 days.

A new low below 2,025.91 would provide price confirmation of a trend change. At that stage, downwards movement could not be a second wave correction within intermediate wave (C) and so intermediate wave (C) would have to be over.

The targets calculated are provisional only. They come with the caveat that price may yet move higher which means the targets would move correspondingly higher. They also come with the caveat that at this very early stage a target for primary wave 3 may only be calculated at primary degree. When intermediate waves (1) through to (4) within primary wave 3 are complete, then the targets may change as they can be calculated at more than one wave degree. Primary wave 3 may not exhibit a Fibonacci ratio to primary wave 1.

The first target at 1,595 is where primary wave 3 would reach 1.618 the length of primary wave 1. This target would most likely not be low enough because primary wave 2 is very deep at 0.96 the length of primary wave 1. Primary wave 3 must move below the end of primary wave 1, and it must move far enough below to allow subsequent room for primary wave 4 to unfold and remain below primary wave 1 price territory. Normally, there is a gap between first wave and fourth wave price territory, particularly in a bear market.

The next target may be more likely. At 1,271 primary wave 3 would reach 2.618 the length of primary wave 1.

If primary wave 3 does not exhibit a Fibonacci ratio to primary wave 1, then neither of these targets would be correct.

Well before these targets, it should be obvious if the next wave down is a primary degree third wave. It should exhibit increasing ATR, strong momentum, and a steep slope. However, please note that although it may begin very strongly it does not have to. It may also be that intermediate wave (1) maintains an ATR about 20 – 30 and has some deep time consuming corrections within it. That was how the last primary degree third wave began within the last bear market, so it may happen again.

Draw a channel about intermediate wave (C) using Elliott’s second technique: draw the first trend line from the lows of minor waves 2 to 4, then place a parallel copy on the high of minor wave 3. Copy this small blue channel over to the hourly chart. Upwards movement may now find resistance at either the lower edge of this blue channel or at the lilac trend line.


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

The degree of labelling within this downwards wave is moved up one degree today. At this stage, it looks more like minor wave 1 close to an end.

This main wave count expects only one more low before a multi day bounce begins. At 2,061 minuette wave (v) would reach equality in length with minuette wave (i).

While price remains within the best fit channel drawn here about downwards movement, then it should be assumed that the trend remains the same, down. Only when the channel is breached by at least one full hourly candlestick above and not touching it would it be indicating a possible trend change. At that stage, a multi day bounce may be expected to most likely have begun. A green daily candlestick would confirm it.

This main wave count expects that within minor wave 1 downwards it is minute wave v which is extended. Minute wave iii is just 0.24 points longer than 1.618 the length of minute wave i, and minute wave v may not exhibit a Fibonacci ratio to either of minute waves i or iii.

There is no Fibonacci ratio between minuette waves (i) and (iii) within the extension of minute wave v. This means it is more likely that minuette wave (v) will exhibit a Fibonacci ratio to either of minuette waves (i) or (iii). At 2,061 minuette wave (v) would reach equality in length with minuette wave (i).

On the five minute chart, the last wave down the low for the session will not subdivide as a five and fits best as a three. This indicates it is part of a correction as a B wave within a flat correction (or an X wave within a combination), which indicates downwards movement is unlikely to be over at this stage.

In the short term, minuette wave (iv) may not move into minuette wave (i) price territory above 2,088.30. Unfortunately, this invalidation point is too far away to be of much use in indicating which hourly wave count is correct.


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

It is possible that downwards movement may still continue for a few days before a multi day correction arrives.

This alternate expects that minute wave iii is the longest extension within minor wave 1. This is a common pattern for the S&P.

At 2,049 minuette wave (iii) would reach 2.618 the length of minuette wave (i).

This alternate wave count will remain possible while price remains within the best fit channel.



S&P 500 weekly 2016
Click chart to enlarge.

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 and lasting nine months. Cycle wave IV would be grossly disproportionate to cycle wave II, and would have to move substantially out of a trend channel on the monthly chart, for it to continue further sideways as a double flat, triangle or combination. For this reason, although it is possible, it looks less likely that cycle wave IV would continue further. It should be over at the low as labelled.

At 2,500 cycle wave V would reach equality in length with cycle wave I.

Price has now broken a little above the 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. Now that the line is breached, the price point at which it is breached is calculated about 2,093.58. 3% of market value above this line would be 2,156.38, which would be above the all time high and the confirmation point.

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 trend line (lilac) 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. It is produced as an alternate, because all possibilities must be considered. Price managed to keep making new highs for years on light and declining volume, so it is possible that this pattern may continue to new all time highs for cycle wave V.

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.

Intermediate wave (2) may still be an incomplete flat correction. Minor wave A will subdivide as a three, a double zigzag, and minor wave B may be seen as a single zigzag.

The most likely point for intermediate wave (2) to end would be the 0.618 Fibonacci ratio at 1,920.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,810.10.

While it is possible that intermediate wave (2) may be a complete double zigzag at the low labelled minor wave A, this would be a very shallow and rather quick second wave correction. The first reasonable second wave correction within a new bull market should be expected to be deeper and more time consuming for this bull wave count, so intermediate wave (2) is expected to continue.



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

Price is the final determinator and the most important aspect of market analysis. So what has price been doing since the all time high in May 2015?

Price has made an important new high above the prior major high of November 2015. Price is now finding resistance at the lilac line. It can no longer be said that price is making lower highs and lower lows because it no longer has a lower high. This is the most bullish indication from price for many months. This supports the bull wave count over the bear.

Last week completes a shooting star candlestick, which is bearish but on its own not overly so. In this instance, because the upper wick of the shooting star is touching an important trend line, the strength of that line is reinforced and should hold if price again comes up to test it.

On Balance Volume this week gives a bearish signal with a move down and away from the upper pink trend line. There is bearish divergence between the last two highs and OBV: OBV could not make a corresponding new high while price this week made a new high above the prior high of 20th of April. This indicates weakness in upwards movement from price.

Volume is declining while price has essentially moved sideways for the last ten weeks in a zone delineated by brown trend lines. The longer price meanders sideways the closer a breakout will be. During this sideways range, it is a downwards week which has strongest volume suggesting a downwards breakout may be more likely. Last week price overshot the upper edge of this range, but could not break out as it closed back within the range completing a red candlestick.

There is some increase in volume for last week’s red candlestick indicating there was some support for the overall fall in price.

The 40 week moving average has turned upwards, another bullish signal. However, this has happened before in October 2015 yet it was followed by a strong downwards wave. On its own this bullish signal does not necessarily mean price is going to make new all time highs.


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.

A doji candlestick after two long real bodies signals some indecision during Tuesday’s session. That this doji comes close to a support / resistance line about 2,075 slightly strengthens the reversal implications. However, this doji comes within a downwards trend, so the reversal implication absolutely requires confirmation with a green daily candlestick tomorrow. The market may fall of its own weight, so doji within a downtrend are not always a reliable reversal signal.

A cyan trend line is added which replicates the trend line on the daily Elliott wave counts. This line is breached and now price may throwback to find resistance; that would be typical market behaviour. The doji for today supports this idea.

Overall, price is falling on increasing volume. The fall in price is being supported by volume. This supports a bearish outlook at least short term and possibly mid term as well.

For the first multi day bounce the 13 day average may not offer good resistance. Trend lines should be used instead.

ADX today has turned up indicating a new downwards trend. ATR is starting to agree as it too is increasing. With these two indicators now in some agreement, more confidence that a high is in place at 2,120 may be had.

On Balance Volume has today provided a strong bearish signal with a break below the purple line. There is no divergence between price and OBV. This does not preclude a multi day bounce, but it does add significant confidence to a trend change. A new cyan trend line is added today to OBV and a break below this line would be another strong bearish signal, but this line may offer a little support first.

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

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

MACD offers a sell signal today with a cross of the shorter average below the longer average.


VIX Monthly 2016
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Several instances of large divergence between price and VIX (inverted) are noted here. Blue is bearish divergence and yellow is bullish divergence (rather than red and green, for our colour blind members).

Volatility declines as inverted VIX rises, which is normal for a bull market. Volatility increases as inverted VIX declines, which is normal for a bear market. Each time there is strong multi month divergence between price and VIX, it was followed by a strong movement from price: bearish divergence was followed by a fall in price and bullish divergence was followed by a rise in price.

There is still current multi month divergence between price and VIX: from the high in April 2016 price has made new highs in the last few days but VIX has failed so far to follow with new highs. This regular bearish divergence still indicates weakness in price.


VIX daily 2016
Click chart to enlarge. Chart courtesy of

There is now only one instance of hidden bearish divergence noted on this daily chart of price and VIX (blue lines). VIX makes higher highs as price makes lower highs. The decline in volatility is not matched by a corresponding rise in price. Price is weak.

There is also very short term regular bearish divergence (short blue lines). VIX did not make a corresponding new high as price made a new high. This indicates exhaustion for bulls and underlying weakness in price.

Price moved higher for three days in a row (6th, 7th and 8th of June) completing green daily candlesticks yet VIX moved lower. This short term divergence between price and VIX is unusual. It indicates further exhaustion from bulls. This trend in price is weak, especially for the last three days up to the last high.

VIX (inverted) has run away strongly from price. Volatility sharply increased beyond the prior point of 19th May (yellow lines) while price fell (yellow lines).

A divergence 101 interpretation of this is bullish. Volatility is stronger than it was on 19th of May, but this has not translated into a corresponding new low for price. Price is weak. Some upwards reaction would be a reasonable expectation about here to resolve this divergence.

Price today overall moved lower to complete a red daily candlestick, albeit a doji. Yet VIX has moved higher. Volatility declined while price overall moved lower. This divergence supports the idea of more upwards movement short term for a multi day bounce, so it supports the main hourly Elliott wave count.

While I would not give much weight to divergence between price and many oscillators, such as Stochastics, I will give weight to divergence between price and VIX. Analysis of the monthly chart for the last year and a half shows it to be fairly reliable.


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.

Taking a look at the bigger picture back to and including the all time high on May 2015, the AD line is making substantial new highs but price so far has not. While market breadth is increasing beyond the point it was at in May 2015, this has not translated (yet) into a corresponding rise in price. Price is weak. This is hidden bearish divergence.

For the last four sessions, price has moved lower and the AD line has also moved lower. There is breadth to this downwards movement from price. There is currently no bullish divergence between price and the AD line.


The last major lows within the bull market are noted below. Both the industrials and transportation indicies have closed below these price points on a daily closing basis; original Dow Theory has confirmed a bear market. By adding in the S&P500 and Nasdaq a modified Dow Theory has not confirmed a new bear market.

Within the new bear market, major highs are noted. For original Dow Theory to confirm the end of the current bear market and the start of a new bull market, the transportation index needs to confirm. It has not done so yet.

Major lows within the prior bull market:

DJIA: 15,855.12 (15th October, 2014) – closed below on 25th August, 2015.
DJT: 7,700.49 (12th October, 2014) – closed below on 24th August, 2015.
S&P500: 1,821.61 (15th October, 2014) – has not closed below this point yet.
Nasdaq: 4,117.84 (15th October, 2014) – has not closed below this point yet.

Major highs within the new bear market:

DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.
DJT: 8,358.20 (20th November, 2015) – has not closed above this point yet.
S&P500: 2,116.48 (3rd Nobember, 2015) – has now closed above this point on 8th June, 2016.
Nasdaq: 5,176.77 (2nd December, 2015) – has not closed above this point yet.

It is a reasonable conclusion that the indices are currently in a bear market. The trend remains the same until proven otherwise. Dow Theory is one of the oldest and simplest of all technical analysis methods. It is often accused of being late because it requires huge price movements to confirm a change from bull to bear. In this instance, it is interesting that so many analysts remain bullish while Dow Theory has confirmed a bear market. It is my personal opinion that Dow Theory should not be accused of being late as it seems to be ignored when it does not give the conclusion so many analysts want to see.

This analysis is published @ 09:47 p.m. EST.