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Downwards movement was expected.

Summary: In the short term, a bounce may arrive to move price higher Monday / Tuesday which if it is deep may end about 2,082. The mid term target for a third wave at minor degree is 2,000. The long term targets for primary wave 3 are 1,595 or 1,271 (the lower target with a higher probability).

Trading advice (not intended for more experienced members): Corrections are an opportunity to join the trend or add to short positions. Traders with a short term strategy may take profits here and wait for a bounce to re-enter, but this does risk missing a possible strong move down that may continue with little interruption for a few days. It may be better to hold on until about 2,000 if not below. If holding on, then move stops to break even or just above 2,113.32 if it protects some profit.

Stops (and risk) for new positions may now be moved down to just above 2,113.32.

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.

I have two Elliott wave counts at the daily chart level. Only one will have an hourly chart; a second will be added when the daily wave counts materially diverge.


S&P 500 daily bear 2016
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Primary wave 2 may have been a zigzag over earlier on 7th of June at 2,120.55. Thereafter, intermediate wave (1) may be underway with minor waves 1 and 2 complete.

At 2,000 minor wave 3 would reach 1.618 the length of minor wave 1. If this target is wrong, it may not be low enough. The next possible target would be at 1,930 where minor wave 3 would reach 2.618 the length of minor wave 1.

Within minor wave 3, no second wave correction may move beyond the start of its first wave above 2,113.32.


S&P 500 hourly bear 2016
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On the five minute chart, minute wave i subdivides neatly as a complete five wave impulse. Minute wave ii may end about either the 0.382 or 0.618 Fibonacci ratios at 2,063 or 2,082. I would favour the higher target slightly as this would be a second wave correction.

Minute wave ii may show up on the daily chart as one to three green daily candlesticks or doji.

It this expectation is wrong, then it may be that minute wave ii could be more brief and shallow. Look out for continuing surprises to the downside.

If minute wave ii unfolds as expected, then it would offer an excellent opportunity to join the downwards trend.


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

Primary wave 2 is relabelled. Intermediate wave (B) within it may have been more time consuming than previously expected. It subdivides as an expanded flat, minor wave B is a 1.16 correction of minor wave A and there is no Fibonacci ratio between minor waves A and C. Minor wave C ends slightly below the end of minor wave A avoiding a truncation.

If price moves any higher when markets open tomorrow (and price moved higher during after hours trading) then it should stop when the final line of resistance, the lilac trend line is touched.

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

Within primary wave 3, no second wave correction may move beyond the start of its first wave above 2,113.32.

At this stage, this alternate does not diverge from the main wave count at the hourly chart level. Both see an impulse downwards complete and both would expect a second wave correction to most likely unfold early next week. Again, look out for continuing surprises to the downside. If this analysis is wrong at the end of this week, it would be in expecting a more time consuming correction for a second wave, which may not turn up.



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 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
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Intermediate wave (2) may be continuing lower. The 0.618 Fibonacci ratio would be a reasonable target at 1,920.

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

I still do not have confidence in this wave count. It absolutely requires a new all time high above 2,134.72 before it would be taken seriously. This wave count has no support from classic technical analysis at the monthly chart level.



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

Another strong downwards week is supported by an increase in volume. If next week can remain below the lower orange support line, then a downwards breakout from consolidation would be confirmed.

Overall price is falling on increasing volume For four weeks in a row. This supports a downwards trend.

On Balance Volume trend lines have been redrawn again. OBV may be finding support this week at the first yellow line. This may initiate a bounce next week, but it does not indicate how long the bounce may last for though, only that a bounce here is likely.

RSI is neutral. There is plenty of room for price to fall. This downwards wave may only be considered over when RSI reaches oversold at the weekly chart level, and preferably also exhibits divergence with price at a low. This was seen at both the last two important weekly lows, so it will be expected as likely to show up again.


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.

Volume from NYSE indicates a decline in volume for Friday with 330.16mil compared to higher volume for Thursday of 525.31mil. NYSE volume data will be used today for volume analysis. The fall in price was not supported by volume; the market fell of its own weight. An absence of buyers can achieve the same outcome for price as an increase in sellers. However, for price to move through a third wave sellers should enter to increase volume. This looks like a first wave which fits the Elliott wave count.

ADX is increasing and the -DX line is above the +DX line indicating a downwards trend is in place. ATR strong agrees today that there is a downwards trend in place. This supports the Elliott wave count.

On Balance Volume has come lower for Friday’s session to touch the first yellow line. This may hold up price for a small bounce, and this may be a second wave bounce expected from the Elliott wave count on Monday / Tuesday.

If OBV moves below the first yellow line, that would be a strong bearish indicator. It would then be in free-fall territory.

RSI is not yet oversold. There is still room for price to move lower. RSI may remain extreme for some time during a strong trend. RSI on the weekly chart level will be more useful to indicate when a low is in place.

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


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.

At the end of this week, there is no bullish divergence at the monthly chart level from VIX. Overall, more downwards movement is still indicated for price.


VIX daily 2016
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Bullish divergence noted with the shorter yellow lines should be resolved now from upwards movement which unfolded over most of last week (until Friday).

There is another instance of longer term possible hidden bullish divergence noted here between price and inverted VIX with longer yellow lines. From the low of 29th February, volatility has at the end of this week strongly increased yet this has not yet translated into an increase in price. Surprisingly, after a very strong downwards day on Friday, this indicates weakness to downwards movement from price. In conjunction with lighter volume for Friday’s session this supports the short term expectation of a bounce on Monday / Tuesday to resolve this divergence.

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.


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 @ 07:49 p.m. EST.