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More sideways movement for Thursday’s session fits the main hourly Elliott wave count.

Summary: One more day of overall downwards movement to 2,168 but not below 2,157.09 is now expected to complete this consolidation, which began back on 14th of July. Thereafter, an upwards breakout is expected. The final wave up is likely to be only about 114 points in length.

Last monthly chart for the main wave count is here.

New updates to this analysis are in bold.

MAIN WAVE COUNT

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge.

Cycle wave V must subdivide as a five wave structure. So far upwards movement is unfolding as an impulse with the fourth wave completing. This may be primary waves 1, 2, 3 and now 4, with primary wave 5 upwards still to come.

Primary wave 3 is shorter than primary wave 1, but shows stronger momentum and volume as a third wave normally does. Because primary wave 3 is shorter than primary wave 1 this will limit primary wave 5 to no longer than equality in length with primary wave 3, so that the core Elliott wave rule stating a third wave may not be the shortest is met. Primary wave 5 will be limited to no longer than 183.95 points in length.

Primary wave 2 was a shallow 0.40 expanded flat correction. Primary wave 4 may be exhibiting alternation as a more shallow triangle.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

Primary wave 2 lasted 47 days (not a Fibonacci number). Primary wave 3 lasted 16 days (not a Fibonacci number).

If primary wave 4 was over on 2nd of September, as per the alternate hourly count below, then it would have lasted a Fibonacci 34 days. If it continues for another one or few days, as per the main hourly wave count below, then it may not exhibit a Fibonacci duration.

The maroon channel is redrawn. Draw it first from the end of primary wave 1 (this can be seen on the weekly chart) to the end of primary wave 3, then place a parallel copy on the end of primary wave 2. If primary wave 5 comes up to touch the upper edge of this channel, then look out for a possible end to this structure there.

HOURLY CHART

S&P 500 hourly 2016
Click chart to enlarge.

Intermediate wave (C) fits well as a double zigzag. One of the five sub-waves of a triangle should be a double.

Intermediate wave (D) no longer has a good fit as a completed zigzag. Minute wave v of minor wave A is slightly truncated, and minor wave C does not look like a five. If it continues any higher, then it may not move substantially above the end of intermediate wave (B) at 2,193.42.

If primary wave 4 is a contracting triangle, then intermediate wave (D) may not move beyond the end of intermediate wave (B).

If primary wave 4 is a barrier triangle, then intermediate wave (D) should end about the same level as intermediate wave (B), so that the (B)-(D) trend line is essentially flat. Unfortunately, this means that intermediate wave (D) may end slightly above the end of intermediate wave (B). This rule is not black and white.

Intermediate wave (E) is most likely to end short of the (A)-(C) trend line. The next likely point for it to end is with an overshoot of the (A)-(C) trend line. Intermediate wave (E) may not move beyond the end of intermediate wave (C) below 2,157.09. This invalidation point for the triangle is black and white.

Sideways movement for Thursday’s session fits as a small triangle. This may be a running contracting triangle for minor wave B within the zigzag of intermediate wave (E). At 2,168 minor wave C would reach 1.618 the length of minor wave A. This target would see intermediate wave (E) have a normal look and fall short of the (A)-(C) trend line.

ALTERNATE HOURLY CHART

S&P 500 hourly 2016
Click chart to enlarge.

If price continues higher and moves reasonably above 2,193.42, then this alternate hourly wave count would be confirmed.

It is possible to see the triangle for primary wave 4 as complete. Intermediate wave (E) may have fallen well short of the A-C trend line and been very brief. This is possible. All reasonable possibilities should be considered.

The structure for intermediate wave (D) now fits as a three.

If primary wave 4 is over here, then the limit for primary wave 5 is at 2,357.84 where it would reach equality in length with primary wave 3. Primary wave 5 may not be longer than equality in length with primary wave 3, so that primary wave 3 is not the shortest actionary wave.

Within primary wave 5, no second wave correction may move beyond the start of its first wave below 2,173.59.

At 2,287 primary wave 5 would reach 0.618 the length of primary wave 3.

At this stage, the degree of labelling within primary wave 5 sees intermediate wave (1) incomplete. Because primary wave 5 may be relatively short this degree of labelling may need to be changed in coming days; it may need to be all moved up one degree.

A first wave and second wave may be complete within primary wave 5. Minor wave 2 fits as a double combination: zigzag – X – triangle.

ALTERNATE WAVE COUNT

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge.

This alternate is identical to the main wave count with the exception of the degree of labelling within cycle wave V.

Here the degree of labelling is moved down one degree. It is possible that only primary wave 1 is completing as a five wave impulse. When it is complete, then primary wave 2 would be expected to be a deep pullback which may not move beyond the start of primary wave 1. At that stage, the invalidation point would move down to the start of cycle wave V at 1,810.10. At that stage, a new low below this point would confirm a bear market for both Elliott wave and Dow Theory.

At 2,500 cycle wave V would reach equality in length with cycle wave I. This is the most common ratio for a fifth wave, so this target has a good probability.

At this stage, this alternate wave count differs only in the degree of labelling to the main wave count, so subdivisions for daily and hourly charts would be labelled the same.

TECHNICAL ANALYSIS

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

Last week completed a green weekly candlestick with a long lower wick. The colour and lower wick are bullish. The slight increase in volume supports the rise in price and is also bullish.

On Balance Volume gave a bullish signal last week as it moved up and away from the upper yellow support line.

RSI is not extreme and exhibits no divergence with price. There is still room for price to rise.

DAILY CHART

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

Price remains range bound with resistance about 2,190 and support about 2,155. Price entered this range about 14th of July. During this period, it is the downwards day of 14th of July which has strongest volume suggesting a downwards breakout is more likely than upwards. However, this trick has recently proven to not work for this market. It is given little weight in this analysis.

A small red candlestick with a very small real body for Thursday’s session comes on increased volume. This indicates that there is some support for the fall in price. It should be expected that price will move lower for at least one more day.

On Balance Volume is still finding support at the yellow trend line. This may halt the fall in price. There is bullish divergence between the low of price on 2nd of August and today: OBV has made a lower low but price has made a higher low. This indicates weakness to downwards movement from price. This divergence does not mean that price must move upwards tomorrow; it only supports an overall bullish wave count for the mid term.

ADX is declining, indicating the market is not trending. ATR is also flat to declining, in agreement with ADX. We would need to see price break above resistance at 2,190 or below support at 2,155 on a day with increased volume to have indication that the trend has returned.

RSI is not extreme. There is room for price to rise further.

Stochastics is not yet overbought. There is a little room for price to rise further before the upwards swing may be over.

MACD should be watched carefully in the next few days. If the shorter black average crosses above the longer red average, then it would indicate a possible upwards trend returning.

Bollinger Bands are still very tightly contracted. There is very little volatility in this market. It will return, probably when price breaks out of this range.

VOLATILITY – INVERTED VIX CHART

VIX daily 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

Volatility is declining as price is rising. This is normal for an upwards trend.

There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. It appears so far that divergence between inverted VIX and price is again working to indicate short term movements spanning one or two days.

Yesterday some bearish divergence between price and VIX was noted from the high of 23rd of August: VIX has made a higher high but price has made a lower high. This indicates some weakness in price. This is now followed by one day of downwards movement from price, and it may be followed by one more day of downwards movement before it is resolved. This supports the main hourly Elliott wave count.

Again, it is noted that divergence between price and VIX is again sometimes working as a short term indicator.

BREADTH – AD LINE

AD Line daily 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

There is support from market breadth as price is rising.

Short term bullish and bearish divergence is again working between price and the AD line to show the direction for the following one or two days.

There is now strong mid term bearish divergence between the AD line and price: the AD line made a new high yesterday but price has failed to make a corresponding new high. This indicates weakness in price. So far this divergence has worked to indicate a short term price movement and has been followed so far by one day of overall downwards movement. Price may move lower for one more day before this divergence is resolved.

DOW THEORY

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 November, 2015) – closed above this point on 8th June, 2016.

Nasdaq: 5,176.77 (2nd December, 2015) – closed above this point on 1st August, 2016.

Dow Theory Conclusion: Original Dow Theory still sees price in a bear market because the transportations have failed to confirm an end to that bear market. Modified Dow Theory (adding S&P and Nasdaq) has failed still to confirm an end to the old bull market, modified Dow Theory sees price still in a bull market.

This analysis is published @ 07:43 p.m. EST.