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A bounce was expected short term for Monday / Tuesday but did not turn up on Monday.

The mid term target at 2,000 was met and exceeded by 8.32 points.

Summary: In the short term, it looks very likely today (more so than the end of last week) that a multi day bounce may begin tomorrow. It is likely to remain below 2,050.37. If it moves above this point, then it should stay below 2,113.32. The target for it to end is about 2,038.15 in about three days time.

Trading advice (not intended for more experienced members): Profits may be taken now for short positions opened below 2,050.37. For short positions opened close to 2,113 or above, traders with a longer horizon may like to still hold onto those. If price bounces up as expected, wait for it to be complete then enter short for the next wave down. It is strongly advised for inexperienced traders to not take long positions; stick with the trend, the trend is down.

Stops (and risk) for longer term positions may now be moved down to just above 2,050.37.

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
Click chart to enlarge.

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.

Within intermediate wave (1), minor wave 3 may have ended today 8.32 points below the target which was at 2,000. Minor wave 3 is 8.09 points longer than 1.618 the length of minor wave 1.

Minor wave 2 was a very deep 0.90 double zigzag correction lasting a Fibonacci five days. Given the guideline of alternation, minor wave 4 may be expected to be shallow and maybe quicker too than minor wave 2. Minor wave 4 may be expected to be a flat, combination or triangle and may last a Fibonacci three, five or maybe even eight days, with a Fibonacci three days the expectation as most likely at this early stage. The downwards pull of a third wave should now be getting stronger, and past behaviour of the S&P in a bear market shows more time consuming second wave corrections than fourth wave corrections. This does not have to be the case here of course, but we should anticipate it as very likely.

After a bounce for minor wave 4, then minor wave 5 down would most likely be about 70 points in length if it reaches equality with minor wave 1. That would complete a five down for intermediate wave (1), which should be followed by a deeper more time consuming correction for intermediate wave (2).

Bear markets do not move price in a straight line. They have deep corrections along the way which must be anticipated. At this stage, future deep corrections may find strong resistance about the cyan trend line. I would not expect the lilac line to be tested again. If it is, it would offer final resistance, and I would not expect it to be breached at all. This means that any short positions opened above 2,100 may remain profitable for a very long time indeed, if traders would like to hold onto them.

Targets for primary wave 3 remain the same. At 1,595 primary wave 3 would reach 1.618 the length of primary wave 1. If price keeps falling through this first target, or if when price gets there the structure is incomplete, then the next target is at 1,271 where primary wave 3 would reach 2.618 the length of primary wave 1. The lower target is more likely because primary wave 2 was very deep at 0.96 of primary wave 1.


S&P 500 hourly bear 2016
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Minute waves iii, iv and v subdivide perfectly on the five minute chart. Minor wave 3 looks today to be over. Minor wave 4 should be expected to show up tomorrow and last a few days.

Because minor wave 3 is close to 1.618 the length of minor wave 1, it is labelled as complete today.

Ratios within minor wave 3 are: minute wave iii has no Fibonacci ratio to minute wave i, and minute wave v is just 0.87 points longer than 0.236 the length of minute wave iii.

If the degree of labelling within minor wave 3 is correct, then the bounce expected to begin tomorrow may not move back up into minor wave 1 price territory above 2,050.37. Minor wave 4 may be a flat, combination or triangle most likely. It may end about the 0.382 Fibonacci ratio of minor wave 3 at 2,038, which is about the mid line of the Elliott channel drawn here.

If the degree of labelling within minor wave 3 is moved down one degree, then it may be that today’s low was only minute wave i of minor wave 3. This is less likely, but still possible. If this is the case, then the bounce expected to begin tomorrow may be another deep second wave correction. Minute wave ii may not move beyond the start of minute wave i above 2,113.32. This is the final invalidation point for this wave count for this reason.


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.

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 correction to most likely unfold. Again, look out for continuing surprises to the downside.

This alternate is judged to have a lower probability than the main wave count because it does not have as good a look.

Targets are slightly different for primary wave 3 because for this alternate it begins at a slightly different point. The lower target is still favoured because primary wave 2 was very deep. At 1,588 primary wave 3 would reach 1.618 the length of primary wave 1. At 1,263 primary wave 3 would reach 2.618 the length of primary wave 1.



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
Click chart to enlarge.

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.

Price has been range bound for several weeks at the weekly chart level. It is not breaking down below the lower edge of support which is about 2,040 (orange lines). If this week’s session closes below 2,040 with a red weekly candlestick on higher volume, then it would be a classic breakout to the downside.


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

Friday’s strong downwards day came with a strong increase in volume. The fall in price was well supported by volume. There is a clear downwards trend for the S&P at this time.

Price fell today again but comes with a decline in volume (although volume remains very high). There was less support today for the fall in price. This suggests the bears may be getting a little tired and supports the Elliott wave count which expects a bounce to arrive tomorrow.

There is a small lower wick on today’s long red candlestick. That also indicates a little activity from bulls at the end of the session, so they may exert themselves a little more over the next session or two before the bears are ready for the next wave down.

ADX is increasing and the -DX line is above the +DX line. There is a trend and it is down.

ATR strongly agrees as it too is increasing.

On Balance Volume today is very bearish with a break below the yellow line which previously provided support. I have checked today for a lower support line. A new line is added to OBV which has been touched today by OBV and may offer support here. This also supports the idea of a bounce. OBV may find resistance at the first yellow line. This may serve to keep any bounce shallow and this too supports the hourly Elliott wave count.

RSI is not yet oversold. There is still room for price to move lower. A low may be only expected to be in place when RSI reaches oversold and preferably also exhibits some divergence with price at lows. There is no divergence with price and RSI at the lows to indicate weakness in price.

There is some divergence today with price and Stochastics at today’s low and the last swing low. This indicates some weakness to downwards movement. However, divergence between price and Stochastics is not always reliable. Sometimes it disappears. It also does not reliably indicate when price may turn as divergence may develop further before price turns.


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
Click chart to enlarge. Chart courtesy of

There is an instance of longer term possible hidden bullish divergence noted here between price and inverted VIX with longer yellow lines. From the low of 24th February, volatility has strongly increased yet this has not yet translated into corresponding lows for price.

Price moved strongly lower for Monday’s session yet volatility declined, identified by the small green arrow. This short term bullish divergence should be taken seriously today. It indicates price is very likely to move higher short term. This strongly supports the 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.

There is divergence today between price and the AD line indicated by short yellow lines. Price today made new lows but the AD line has failed to make corresponding new lows. This indicates some weakness to downwards movement from price. There is less breadth to downwards movement this time. This divergence is bullish and also supports the hourly Elliott wave count.


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 @ 11:41 p.m. EST.