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Upwards movement broke above 2,050.37 indicating price should continue higher to 2,067.

Upwards movement reached 2,073.13 for the session.

Summary: In the short term, a correction looks to be complete. A third wave down should begin very soon, most likely tomorrow. There is a possibility price could limp slowly higher for one to three days first, but this does look less likely. The short term target is at 1,876. Long term targets remain at 1,595 in the first instance and 1,271 thereafter.

Trading advice (not intended for more experienced members): Traders with less experience may enter short now with stops just above 2,113.32. Do not invest any more than 3-5% on short trades in total. Always use a stop loss. Anyone who hedged with a long position should close here. Any positions opened close to or above 2,113.32 should hold on if your strategy is longer term.

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 be extending. A target for minor wave 3 will only be calculated again when minute waves iii and iv within it are complete and the target can be calculated at two wave degrees.

Minor wave 2 was a very deep 0.90 double zigzag correction lasting a Fibonacci five days.

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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Minor wave 3 is not over. It looks like it is extending further. Within minor wave 3, minute waves i and now ii may now be complete.

Price has moved back up into the base channel (sometimes base channels do not always work perfectly). Minute wave ii, if it moves higher tomorrow, should find strong resistance at the upper edge of the base channel.

Minute wave ii is a deep 0.67 zigzag. Within minute wave ii, minuette wave (c) is just 0.11 short of 1.618 the length of minuette wave (a).

At 1,876 minute wave iii would reach 1.618 the length of minute wave i.

If minute wave ii continues any higher tomorrow, then it may not move beyond the start of minute wave i above 2,113.32.


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 upwards is complete today. 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 moved upwards again today but on declining volume. Each time as price moves down volume increases and as price moves up volume declines. The volume profile continues to be bearish. Price must be supported by volume for price to be able to keep going up to significant new highs, but this is not the case here. This does not tell us that price must turn here, so it may continue a little higher yet, but it does tell us the upwards wave is weak.

Price may find some resistance at this next horizontal line about 2,075 and about the 13 day moving average which is at 2,071 today. Resistance here may serve to stop price rising any further.

Volume for today and yesterday is still relatively high though in comparison to prior upwards days. But it does still remain much lighter than downwards volume. If price is beginning to enter a new stronger trend, then an increase in volume and ATR should be expected.

ADX today is slightly declining, indicating there may not be a trend in place. ATR disagrees today though. Some disagreement between these two indicators early on in a new trend is to be expected. If ATR again increases, then further confidence may be had in a downwards trend.

On Balance Volume did not stop at resistance at the upper yellow line as expected. Sometimes it does not respect these lines; it just does more often than not and this was an occasion when it did not. There is now room for OBV to move higher, so the possibility of higher prices short term exists. The purple line may offer resistance and stop a rise in price when OBV comes up to touch it.

Two days of upwards movement have bought RSI back up to neutral. There is plenty of room for price to rise or fall. There is no divergence, either bullish or bearish, between price and RSI to indicate weakness either way today.

Stochastics is no longer oversold. There is room for price to rise or 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
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. This bullish divergence may now be resolved by some upwards movement from price over the last two days.

There is today a new instance of hidden bearish divergence between VIX (inverted) and price. As price moved higher over the last two days inverted VIX also moved higher, which indicates volatility has declined. This is normal and should be expected. What is not normal here though is the decline in volatility is stronger than where it was for 23rd June. This indicates weakness in upwards movement from price.

There was an earlier instance of short term hidden bearish divergence between VIX and price, shown here by short blue lines on both from 27th of May to 3rd of June. That was followed by some downwards movement, but it did not happen immediately. Price limped along upwards in a very small range for three days before turning. It is entirely possible that this may happen again. This current divergence indicates weakness and should be taken very seriously, but it cannot tell us that price must turn here.

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 between price and the AD line indicated by short yellow lines. Price 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. Upwards movement over the last two days may be enough to resolve this bullish divergence.

The AD line today made a new high above its prior high of 23rd of June yet price has not made a corresponding new high. This divergence now is bearish. It indicates that price is weak.


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 @ 09:14 p.m. EST.