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Bearish divergence noted in the past few sessions between price and market breadth has correctly signalled a fall in price.

Summary: A new low below 2,457.92 gives some reasonable confidence that a fourth wave correction has arrived. The fourth wave may be relatively brief and shallow as minor wave 4, or it may be a much deeper multi week pullback or consolidation as intermediate wave (4). At this stage, it is still impossible to tell which scenario may play out.

Last monthly and weekly charts are here. Last historic analysis video is here.



S&P 500 Weekly 2017
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This wave count has strong support from another bullish signal from On Balance Volume at the weekly chart level. While classic analysis is still very bullish for the short term, there will be corrections along the way up. Indicators are extreme and there is considerable risk to the downside still.

As a Grand Super Cycle wave comes to an end, weakness may develop and persist for very long periods of time (up to three years is warned as possible by Lowry’s for the end of a bull market), so weakness in volume may be viewed in that larger context.

Within minute wave v, no second wave correction may move beyond the start of its first wave below 2,417.35.

The next reasonable correction should be for intermediate wave (4). When it arrives, it should last over two months in duration, and it may find support about the lower edge of this best fit channel. The correction may be relatively shallow, a choppy overlapping consolidation, at the weekly chart level.


S&P 500 Daily 2017
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To see details of the whole of primary wave 3 so far see the analysis here.

Minor wave 3 may be complete and may not exhibit a Fibonacci ratio to minor wave 1.

Minor wave 2 was very brief at only three days. It is possible for good proportion that minor wave 4 could be as brief.

The 0.146 and 0.236 Fibonacci ratios should be first and second targets for minor wave 4 to end.

Minor wave 4 should break down below the green channel containing minuette wave (v). A breach of this channel would add substantial confidence in this wave count. Note that the green channels are drawn differently on the daily charts. While price is breaking below the channel on the alternate chart, it has not yet done so here on this main daily chart.

If minor wave 4 were to end within the price territory of the fourth wave of one lesser degree, then a target range would be from 2,490.87 to 2,417.35. The 0.382 Fibonacci ratio of minor wave 3 is within this range at 2,455.


S&P 500 Hourly 2017
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Minor wave 2 was a quick zigzag, so minor wave 4 may exhibit alternation as a shallow and sideways flat, combination or triangle.

First, a five down should complete even for a correction at minor degree. That would be incomplete. While it is incomplete, no second wave correction may move beyond the start of this movement above 2,578.29.

So far an impulse may be completing to the downside. Only a fifth wave down is now needed. Minuette wave (iv) may not move into minuette wave (i) price territory above 2,564.33.

If price does move above 2,564.33 early tomorrow, then the short term invalidation point must move up to 2,572.18. Today’s downwards wave would then be labelled as another first wave down, and another second wave correction would then be expected.

So far minuette wave (iv) has slightly overshot the small Elliott channel. If it continues to overshoot this channel, then the channel would need to be redrawn using Elliott’s second technique. Any deep bounces should find strong resistance at the lilac trend line.



S&P 500 Daily 2017
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It is also possible that both minor waves 3 and 4 could be over.

My initial judgement was to label this as an alternate because of the brevity and shallowness of minor wave 4. This does not look right. However, there is still good alternation and good proportion with minor wave 2, which lasted only three days and was a zigzag. Here, minor wave 4 may have also lasted only three days and may have been a flat correction.

Intermediate wave (3) could be over. A deep multi week correction for intermediate wave (4) may have arrived.

Intermediate wave (2) lasted eleven weeks and was a relatively deep 0.54 double zigzag. Intermediate wave (4) may be a shallow flat, triangle or combination to exhibit alternation. To exhibit good proportion, it may last about eleven weeks or possibly a Fibonacci eight or thirteen.

A new low below 2,547.92 could not be a second wave correction within minor wave 5, so at that stage minor wave 5 must be over. This would add reasonable confidence that a correction has arrived.


S&P 500 Hourly 2017
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A correction at intermediate degree should begin with a five down on the hourly chart. That would be incomplete. While it is underway, no second wave correction may move beyond the start of its first wave above 2,578.29.

The analysis for both wave counts will be essentially the same at the hourly chart level while the first five down unfolds. Here, everything is moved up one degree.



S&P 500 weekly 2017
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At the weekly chart level, the technicals last week look even more bullish than the week prior.

Longer term divergence with price and RSI does not appear to be very reliable; it has again disappeared. Like divergence with VIX and the AD line, divergence with price and RSI appears to be more reliable for the short term when it is clear and strong.

This chart is fully bullish. There is nothing bearish yet here.


S&P 500 daily 2017
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More commentary is on the chart today.

This chart is now slowly switching from full bore bullish to more bearish. A short to mid term consolidation is now indicated.

Next support about 2,540. The long lower wick today suggests a bounce tomorrow.


VIX daily 2017
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Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.

The fall in price today has a normal corresponding increase in market volatility.


AD Line daily 2017
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With the last all time high for price, the AD line also made a new all time high. Up to the last high for price there was support from rising market breadth.

There is normally 4-6 months divergence between price and market breadth prior to a full fledged bear market. This has been so for all major bear markets within the last 90 odd years. With no divergence yet at this point, any decline in price should be expected to be a pullback within an ongoing bull market and not necessarily the start of a bear market.

Bearish divergence has accurately predicted a fall in price. Price today has made a new small swing low and the AD line has too. The fall in price has support from declining market breadth.


At the end of last week, only the Dow Jones Transportation Average has not made new all time highs. The continuation of the bull market has not this week been confirmed. However, the Dow Jones Transportation Average is not far off its last all time high. If it does make a new all time high, then this analysis will be totally and fully bullish.

Failure to confirm an ongoing bull market should absolutely not be read as the end of a bull market. For that, Dow Theory would have to confirm new lows.

The following lows need to be exceeded for Dow Theory to confirm the end of the bull market and a change to a bear market:

DJIA: 17,883.56.

DJT: 7,029.41.

S&P500: 2,083.79.

Nasdaq: 5,034.41.

Charts showing each prior major swing low used for Dow Theory are here.

Published @ 05:37 p.m. EST.