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Downwards movement was expected as most likely for the session, but it was allowed that price could continue higher.

Price remains below the invalidation point.

Summary: In the short term, it looks like upwards movement is not quite over. But this upwards wave is very weak and should be expected to still end sooner rather than later, and it is likely to make at least a slight new high above 2,111.05. The next wave down may be surprisingly strong.

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 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. If price continues higher tomorrow, then look for upwards movement to end again if it comes up to the lilac trend line. This line may be a better guide for when and where upwards movement may end than any target which could be calculated.

I still have two daily charts. The first main wave count is new. It has better proportions today.


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

Primary wave 2 may be an almost complete zigzag.

Intermediate wave (B) may have been over at the last low as a regular flat correction. Minor wave B within it is a 1.02 length of minor wave A, shorter than the 1.05 requirement for an expanded flat but longer than the minimum requirement of 0.9. There is no Fibonacci ratio between minor waves A and C; minor wave C is shorter than 1.618 the length of minor wave A and was not truncated.

Intermediate wave (C) would be likely to end at least slightly above the end of intermediate wave (A) at 2,111.05 to avoid a truncation.

This wave count has better proportions now than the last main wave count (now an alternate) and the alternate presented yesterday (not published today). Intermediate wave (C) may be over in a few days. This is more acceptable for a C wave within a zigzag than it would be for a second wave within a new trend. Overall, primary wave 2 would have lasted months as a primary degree wave should. This proportion looks about right.

The cyan line has been overshot a few times. It continues to provide some resistance and then support after price breaks above it. The lilac line has been tested only twice, last time at the high of 8th of June. If price comes up to it again, then it should be expected to offer very strong resistance, and that should be where upwards movement ends if a bear market is intact.

When the end of primary wave 2 is known, then a target may be calculated for primary wave 3 down. That cannot be done yet. The expectation would be for primary wave 3 to be either 535 or 850 point in length, with the longer length more likely as primary wave 2 is very deep.


S&P 500 hourly bear 2016
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So far upwards movement sits within a very narrow channel. The earliest indication that it may be over would be a breach of this channel to the downside.

Minor wave 3 is just 0.11 points short of 1.618 the length of minor wave 1. Minor wave 5 would reach equality with minor wave 3 at 2,127. This target looks to be too high though because it would require the lilac line to be overshot and that line should provide very strong resistance.

The best way to see when and where upwards movement ends would be to use trend lines in this instance. Expect price to keep rising while price remains within the cyan channel; this is supported today by volume. If price touches the lilac line, then expect upwards movement to end there.

If the cyan trend line is breached, then expect a trend change and the start of a primary degree third wave down.


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

This was the main wave count up to yesterday. It is now relegated to a less likely alternate and will remain possible while price remains below 2,113.32. It is possible that upwards movement could end above 2,111.05 and below 2,113.32 which would leave both wave counts valid.

If primary wave 2 was over earlier on 8th of June, then primary wave 3 has begun. At 1,595 primary wave 3 would reach 1.618 the length of primary wave 1. At 1,271 it would reach 2.618 the length of primary wave 1.

Within primary wave 3, now intermediate wave (1) would most likely be incomplete. The middle of it would be extending, now with two overlapping first and second waves.

Minute wave ii may not move beyond the start of minute wave i above 2,113.32.

The problem today is the size and depth of minute wave ii. If price continues higher tomorrow as expected, then it would be out of proportion with minute wave i and this part of the wave count would start to have a slightly odd look.



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 be over, so intermediate wave (3) upwards may be underway. Within intermediate wave (3), no second wave correction may move beyond the start of its first wave below 1,991.68.

Intermediate wave (2) now has better proportion in terms of duration to intermediate wave (1), but it is still more shallow than the first second wave within a new bull trend normally is. Here, it would be only 0.40 the length of intermediate wave (1).

This wave count absolutely requires a new all time high before any confidence may be had in it.



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

This week closes with a very strong Bullish Engulfing candlestick pattern, but there are two problems with this. This candlestick pattern comes within a trading range. Candlestick patterns during consolidations are not reliable reversal signals. It also comes with a decline in volume. It could be interpreted as bullish, but for more confidence that it is bullish a breakout above resistance (orange lines) on a day with increased volume should be seen.

The long lower wick of this candlestick is also bullish.

Price is back well within the range delineated by orange lines, with resistance about 2,107 and support about 2,040. During this period, it is still a downwards week which has strongest volume (ignoring the week with the options expiry date). This suggests a downwards breakout is more likely than upwards.

On Balance Volume is still constrained below the purple line and above the yellow line. A breakout by OBV may precede a breakout by price.

There is no divergence between price and RSI at this time to indicate weakness either way.


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

Three days of upwards movement completes an Advancing White Soldiers candlestick pattern. Today comes with some increase in volume. Although the third candlestick has a real body that is smaller than the first two, it is not substantially smaller. It is large enough for this pattern to be a bullish pattern and not small enough to indicate a Stalled pattern and a reversal at this stage.

However, volume for the last three days remains much lighter than the two prior downwards days. The fall in price was well supported by volume, and now the rise in price does not have as much support from volume. This indicates more selling pressure than buying; it still looks like this upwards wave is a bear market rally. The volume profile overall remains bearish.

Price should be coming with an increase in volume for a rise in price to be sustainable to new all time highs. Each time price gets closer to the all time high it shows weakness, and so far each time the rise has ended as a bear market rally. While weakness remains, it would be reasonable to expect that this will be another deep rally that will be eventually repelled, before a new all time high.

ADX no longer indicates a trend is in place. The -DX line is very close to the +DX line. If they cross over, it would indicate a possible trend change. This is a lagging indicator as it is based on a 14 day average.

ATR is still overall increasing after a long period of decline and then flattening off. The last few days has seen price begin to move in a wider range, but today ATR is showing some curving off from its steepness. The rise in price is coming slower than the prior fall in price. Again, this may be interpreted as some weakness, particularly if it persists.

On Balance Volume today has come up to touch the first purple line. This may offer resistance, but it has been breached before yet OBV turned back down to fall below it. It offers only some technical significance. A break above would be a weak bullish signal. For a clearer bullish signal from OBV, the upper purple line should be breached. To the downside, a clear bearish signal would be a break below the lower yellow line. Unfortunately, at this time these trend lines are too far away for OBV to be a leading indicator.

RSI has returned to neutral. There is room for price to rise or fall. There is no current divergence between price and RSI to indicate weakness either way.

Stochastics does not indicate any divergence either and is also close to neutral.


VIX Monthly 2016
Click chart to enlarge. Chart courtesy of

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 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 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 three 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, 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. (long blue lines)

There is divergence between price and the AD line indicated by short yellow lines. Price made new lows but the AD line 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 three days may be enough to resolve this bullish divergence.

The AD line has now made a new high above its prior high of 23rd of June yet price has not made a corresponding new high (short blue lines). 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 @ 09:53 p.m. EST.