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Upwards movement unfolded as expected for Monday’s session.

The main Elliott wave count today will have two hourly charts, a main and an alternate.

Summary: A downwards day and a red daily candlestick are expected for tomorrow. The preferred target is at 2,145, with a lower slightly less preferred target at 2,140. Thereafter, upwards movement should resume.

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. I have two wave counts for upwards movement of cycle wave V. This main wave count is presented first only because we should assume the trend remains the same until proven otherwise. Assume that downwards movement is a correction within the upwards trend, until proven it is not.

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 has a limit at 2,316.85.

Primary wave 2 was a shallow 0.40 expanded flat correction. Primary wave 4 may have ended as a shallow 0.39 double zigzag. There is no alternation in depth, but there is good alternation in structure.

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

It is also possible to move the degree of labelling within cycle wave V all down one degree. It may be only primary wave 1 unfolding. The invalidation point for this idea is at 1,810.10. That chart will not be published at this time in order to keep the number of charts manageable. The probability that this upwards impulse is only primary wave 1 is even with the probability that it is cycle wave V in its entirety.

When the five wave structure upwards labelled primary wave 5 is complete, then my main wave count will move the labelling within cycle wave V all down one degree and expect that only primary wave 1 may be complete. The labelling as it is here will become an alternate wave count. This is because we should always assume the trend remains the same until proven otherwise. We should always assume that a counter trend movement is a correction, until price tells us it’s not.

DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

Primary wave 3 is 16.14 points longer than 0.618 the length of primary wave 1. This is a reasonable difference. But as it is less than 10% the length of primary wave 3, it is my judgement that it is close enough to say these waves exhibit a Fibonacci ratio to each other.

If this pattern continues, then about 2,240 primary wave 5 would reach 0.618 the length of primary wave 3. If this target is wrong, it may be too high. When intermediate waves (1) through to (4) are complete, then the target may be changed as it may be calculated at a second degree.

There is good proportion for this wave count. Primary wave 1 lasted 46 days, primary wave 2 lasted 47 days, primary wave 3 lasted a Fibonacci 34 days, and primary wave 4 lasted 42 days. So far primary wave 5 has lasted seven days. If it exhibits a Fibonacci duration, it is likely to be more brief than primary wave 3. A Fibonacci 13 days may be reasonably likely at this stage. That would see primary wave 5 end on 1st of November. If this expectation is wrong, it may be too brief. This market is currently very slow moving.

Primary wave 4 fits perfectly as a double zigzag. The second zigzag in the double should have ended with a small overshoot of the lilac trend line. This line should provide very strong support. There is almost no room left for primary wave 4 to move into.

If primary wave 4 continues any further, it may not move into primary wave 1 price territory below 2,111.05.

Primary wave 5 must be a five wave structure, so it is most likely to be a simple impulse. It may be relatively quick, and would be very likely to make at least a slight new high above the end of primary wave 3 at 2,193.81 to avoid a truncation. So far it looks like it is unfolding as an impulse rather than an ending diagonal. Within the impulse of intermediate wave (3), the correction of minor wave 2 is now clear. This is typical for third waves of the S&P, so now at the daily chart level this part of the wave count has the right look.

Because primary wave 5 must be shorter in length than primary wave 3, each of its sub-waves should be shorter in length and duration. For this reason intermediate waves (1) and (2) are labelled as complete within primary wave 5. Intermediate wave (2) may have ended when price came to almost again touch the lilac trend line.

HOURLY CHART

S&P 500 hourly 2016
Click chart to enlarge.

There may now be three first and second waves within primary wave 5. Minute wave ii looks incomplete and may end about either the 0.382 or 0.618 Fibonacci ratios of minute wave i. The 0.382 Fibonacci ratio is favoured in this case because the middle of a third wave should now have the pull to force corrections to be more brief and shallow than normal.

Today’s gap on the hourly chart looks like it may be a breakaway gap. If this is the case, then it may not be filled. However, price is still within a consolidation zone at the daily chart level, so it may also be a common or pattern gap; if so, then it may well be filled. If the gap is filled, then minute wave ii may end about the 0.618 Fibonacci ratio.

Minute wave ii may not move beyond the start of minute wave i below 2,130.09.

Today’s upwards movement shows an increase in momentum. Minor wave 3 should be expected to show stronger momentum than minor wave 1. It should also show support from volume.

A short term support line is drawn in cyan on the hourly chart. Look for this line to provide final support to downwards movement tomorrow.

HOURLY CHART – ALTERNATE

S&P 500 hourly 2016
Click chart to enlarge.

What if the degree of labelling within minor wave 2 is moved all down one degree? How likely is it that minor wave 2 may be still incomplete?

If this is the case, then at its conclusion minor wave 2 would be grossly disproportionate to intermediate wave (2) one degree higher. Already minor wave 2 for the main hourly wave count is almost twice the duration of intermediate wave (2). If it were to continue, it may end as more than 3 or 4 times the duration of intermediate wave (2) giving the wave count the wrong look. This reduces the probability.

Minor wave 2 may be unfolding as an expanded flat correction. Within minor wave 2, minute wave b is a 1.74 length of minute wave a. This is a little longer than the maximum common length of up to 1.38, so this also reduces the probability of this wave count.

Minute wave c would be likely to end at least slightly below the end of minute wave a at 2,130.09 to avoid a truncation and a very rare running flat.

This wave count is possible technically, but it does have a very low probability.

ALTERNATE WAVE COUNT

WEEKLY CHART

S&P 500 weekly 2016
Click chart to enlarge.

What if an impulse upwards is complete? The implications are important. If this is possible, then primary wave 1 within cycle wave V may be complete.

With downwards movement from the high of primary wave 1 now clearly a three and not a five, the possibility that cycle wave V and Super Cycle wave (V) are over has substantially reduced. This possibility would be eliminated if price can make a new all time high above 2,193.81.

If an impulse upwards is complete, then a second wave correction may be unfolding for primary wave 2. Expectations on how deep primary wave 2 is likely to be are now adjusted. It may be expected now to more likely only reach the 0.382 Fibonacci ratio about 2,038.

At this stage, it looks like price has found strong support at the lilac trend line.

Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10.

DAILY CHART

S&P 500 daily 2016
Click chart to enlarge.

If an impulse upwards is complete, then how may it subdivide and are proportions good?

Intermediate wave (1) was an impulse lasting 47 days. Intermediate wave (2) was an expanded flat lasting 47 days. Intermediate wave (3) fits as an impulse lasting 16 days, and it is 2.04 points short of 0.618 the length of intermediate wave (1). So far this alternate wave count is identical to the main wave count (with the exception of the degree of labelling, but here it may also be moved up one degree).

Intermediate wave (4) may have been a running contracting triangle lasting 22 days and very shallow at only 0.0027 the depth of intermediate wave (3). At its end it effected only a 0.5 point retracement. There is perfect alternation between the deeper expanded flat of intermediate wave (2) and the very shallow triangle of intermediate wave (4). All subdivisions fit and the proportion is good.

Intermediate wave (5) would be very brief at only 18.29 points. Intermediate wave (5) is 1.43 points longer than 0.056 the length of intermediate wave (1).

At this stage, primary wave 2 now has a completed zigzag downwards that did not reach the 0.236 Fibonacci ratio. It is very unlikely for this wave count that primary wave 2 is over there; the correction is too brief and shallow. Upwards movement labelled intermediate wave (X) is so far less than 0.9 the length of the prior wave down labelled intermediate wave (W). The minimum for a flat correction has not been met. Primary wave 2 may continue lower as a double zigzag. A second zigzag in the double may be required to deepen the correction closer to the 0.382 Fibonacci ratio.

Intermediate wave (W) lasted a Fibonacci 13 sessions. Intermediate wave (X) is a complete triangle. X waves may subdivide as any corrective structure (including multiples), and a triangle is possible here.

If minor wave B within the second zigzag of intermediate wave (Y) moves any higher, it may not move beyond the start of minor wave A above 2,169.60.

Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10. A new low below this point would see the degree of labelling within cycle wave V moved up one degree. At that stage, a trend change at Super Cycle degree would be expected and a new bear market to span several years would be confirmed.

HOURLY CHART

S&P 500 daily 2016
Click chart to enlarge.

Intermediate wave (Y) should subdivide as a zigzag to deepen the correction.

Minor wave B may have completed as a double combination: flat – X – zigzag.

While the subwaves of W, Y and Z within combinations may be only simple corrective structures, X waves may be any type of corrective structure including a multiple. The maximum number of corrections within a multiple is three, so this rule applies to W, Y and Z and not to the X waves which move in the opposite direction and join the corrective structures within a multiple.

Minute wave x subdivides as a double zigzag in this case, and the rule is met: there are only two corrective structures in this multiple with one X wave joining them.

If minor wave B continues any further, it may not move beyond the start of minor wave A above 2,169.60.

At 2,089 minor wave C would reach 1.618 the length of minor wave A. This would take intermediate wave (Y) somewhat below the end of intermediate wave (W), achieving its purpose of deepening the correction.

This wave count requires confirmation with a new low below 2,111.05 before it should be used.

TECHNICAL ANALYSIS

WEEKLY CHART

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

The lilac trend line has strong technical significance. Price broke through resistance, turned down to test support for the first time, and then moved up and away from this line. It was reasonable to conclude that a new all time high is a likely consequence of this typical behaviour.

Now price has come back down for a second test of the lilac trend line. This line is expected to continue to provide support because support at this line is so strong. A break below this line would be a highly significant bearish signal.

A small inside week closes green. Overall, price last week moved upwards. This comes with some increase in volume to support a small rise in price, so this is bullish.

On Balance Volume has some distance to go before it finds any resistance at trend lines.

RSI is still close to neutral. There is plenty of room for price to rise further.

DAILY CHART

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

An upwards day has found resistance about 2,155 and comes with lighter volume. The rise in price today was not supported by volume, so it is suspicious. This does not support the main Elliott wave count.

ADX today is declining, indicating the market is not trending. Price is restrained with resistance about 2,175 and support about 2,120.

ATR agrees with ADX that this market is not trending. Bollinger Bands agree too; they remain tightly contracted. This market lacks volatility.

It is the downwards day of 16th of September that has strongest volume during this consolidation suggesting a downwards breakout may be more likely than upwards. Note that this technique does not always work, so today it is just one piece of information to take into account.

On Balance Volume is also constrained within support and resistance lines. Each line is reasonably shallowly sloped, now long held and repeatedly tested. These lines now offer strong technical significance. A breakout by On Balance Volume prior to a strong movement from price may indicate the breakout direction from price. In the short term, support at the yellow line may stop price from falling much further.

Stochastics is not managing to reach extreme during this consolidation, so expectations for it are narrowed. Stochastics is returning from almost oversold while price is returning from support. A continuation of an upwards swing may be expected until price reaches resistance and Stochastics reaches almost overbought. Currently, Stochastics is only halfway. Each swing is choppy and overlapping, typical of a consolidating market. Do not expect price to move in a straight line.

VOLATILITY – INVERTED VIX CHART

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

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.

Bullish divergence noted in last analysis may now be resolved by a gap up and an upwards day.

New bearish divergence today is noted. Inverted VIX today made a new high above the prior swing high of the 10th of October, but price has so far failed to make a corresponding new high. This is hidden bearish divergence, and it may be followed by one or two days of overall downwards movement.

BREADTH – AD LINE

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

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.

Bullish divergence noted in last analysis may now be resolved by a gap up and an upwards day. No new divergence is today noted between price and the AD line.

DOW THEORY

Major lows within the old 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 bear market from November 2014:

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 @ 09:15 p.m. EST.