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Upwards movement continued for another day towards targets as expected. Today, the AD line and VIX are giving signals.

Summary: The target for a short term interruption to the trend calculated using classic technical analysis methods, at 2,755 to 2,760, has now been met today.

The AD line today gives a bearish signal, and there are now three bearish signals from VIX. This supports the third hourly Elliott wave count, which expects a correction here to last about one to two weeks. However, the channel on the hourly chart needs to be breached by downwards movement before reasonable confidence may be had in this view.

The target is still at 2,858 while price remains within the channel. Assume the trend remains the same until proven otherwise.

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

The biggest picture, Grand Super Cycle analysis, is here.



S&P 500 Weekly 2018
Click chart to enlarge.

Cycle wave V must complete as a five structure, which should look clear at the weekly chart level. It may only be an impulse or ending diagonal. At this stage, it is clear it is an impulse.

Within cycle wave V, the third waves at all degrees may only subdivide as impulses.

Within cycle wave V, the corrections for primary wave 2 and intermediate wave (2) both show up clearly, both lasting several weeks. The respective corrections for intermediate wave (4) and primary wave 4 should also last several weeks, so that they show up at weekly and monthly time frames. The right proportions between second and fourth wave corrections give a wave count the right look. This wave count expects to see two large multi week corrections coming up.

Cycle wave V has passed equality in length with cycle wave I, which would be the most common Fibonacci ratio for it to have exhibited. The next most common Fibonacci ratio would be 1.618 the length of cycle wave I.

Intermediate wave (3) has passed equality in length with intermediate wave (1). It has also now passed both 1.618 and 2.618 the length of intermediate wave (1), so it may not exhibit a Fibonacci ratio to intermediate wave (1). The target calculation for intermediate wave (3) to end may have to be done at minor degree; when minor waves 3 and 4 are complete, then a target may be calculated for intermediate wave (3) to end. That cannot be done yet.

When minor wave 3 is complete, then the following multi week correction for minor wave 4 may not move into minor wave 1 price territory below 2,400.98. Minor wave 4 should last about four weeks to be in proportion to minor wave 2. It may last about a Fibonacci three, five or even eight weeks if it is a time consuming sideways correction like a triangle or combination. It may now find support about the mid line of the yellow best fit channel. If it does find support there, it may be very shallow. Next support would be about the lower edge of the channel.

A third wave up at four degrees may be completing. This should be expected to show some internal strength and extreme indicators, which is exactly what is happening.


S&P 500 Daily 2018
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Keep redrawing the acceleration channel as price continues higher: draw the first line from the end of minute wave i to the last high, then place a parallel copy on the end of minute wave ii. When minute wave iii is complete, this would be an Elliott channel and the lower edge may provide support for minute wave iv.

Minute wave iii has passed 1.618 the length of minute wave i. The next Fibonacci ratio in the sequence is used to calculate a target for it to end.

Minute wave iv may not move into minute wave i price territory below 2,490.87. However, minute wave iv should most likely remain within the channel and not get close to the invalidation point. It may end within the price territory of the fourth wave of one lesser degree, that of minuette wave (iv) from 2,694.97 to 2,673.61.


Three hourly charts are presented below. The first two charts look at the possibility that minute wave iii is not yet over, and the third will consider the possibility that it could be over at today’s high.


S&P 500 Hourly 2018
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This first hourly chart follows on from yesterday’s analysis.

Minuette wave (v) to end minute wave iii may be incomplete. It may be subdividing as an impulse.

Within the impulse, subminuette waves i, ii and now iii may be complete. Subminuette wave iv may not move into subminuette wave i price territory below 2,729.29.

Subminuette wave iii, if it is over at today’s high, would be shorter than subminuette wave i. This would limit subminuette wave v to no longer than equality in length with subminuette wave iii, so that subminuette wave iii is not the shortest actionary wave within the impulse.


S&P 500 Hourly 2018
Click chart to enlarge.

This second hourly chart moves the degree of labelling from the low of subminuette wave ii all down one degree.

It is possible that subminuette wave iii is not over yet. The target at 2,858 may then be met.

Subminuette wave iii may only subdivide as an impulse. Within subminuette wave iii, only micro wave 1 may be over at today’s high. Micro wave 2 may not move beyond the start of micro wave 1 below 2,729.29.

However, this wave count would be discarded if price breaks below the lower edge of the yellow channel, because it would no longer have the right look. Micro wave 2 should be relatively brief and shallow.


S&P 500 Hourly 2018
Click chart to enlarge.

Always assume the trend remains the same until proven otherwise. In this case, proven otherwise would be a breach of the yellow channel. While price remains within that channel, this is a third wave count in which we should not put too much confidence.

However, the bearish signal today from the AD line along with three bearish signals now from VIX do offer some support for this wave count.

If the channel is breached by downwards (not sideways) movement, then expect that minute wave iii is over and minute wave iv has arrived. At that stage, expect a multi week consolidation or pullback.

Minute wave ii lasted 9 days and was a shallow zigzag. Given the guideline of alternation, expect minute wave iv to be more shallow and to be a sideways flat, combination or triangle. It may find support about the lower edge of the Elliott channel (which is exactly the same as the acceleration channel on the daily chart).



S&P 500 weekly 2018
Click chart to enlarge. Chart courtesy of

Indicators should be expected to be extreme as a third wave at four degrees comes to an end.

When third waves are ending they fairly often will show weakness at the weekly chart level. There is no evidence of weakness at this time. When intermediate wave (3) is close to or at its end, then we may expect to see some weakness.


S&P 500 daily 2018
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The flag gives a target at 2,755. The measuring gap gives a target at 2,760. The high today at 2,759.14 perfectly meets this small 5 point target zone.

The doji on its own is not a reversal signal. It represents only a pause, a balance of bulls and bears. However, an Evening Doji Star would be a reasonable reversal signal if tomorrow completes a red candlestick which moves price lower.

Only Stochastics today shows weakness and it is only single day divergence. This is not enough to call for an end yet to the trend.

It seems reasonable to conclude from this chart that a multi day to multi week (only a very few) consolidation or pullback may have arrived if price moves down tomorrow. At its end, it should be used as an opportunity to join the longer term upwards trend.


VIX daily 2018
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So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.

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.

There are now three very recent instances of bearish divergence between price and VIX: on both the 4th and 8th of January and now also today price moved higher but inverted VIX moved lower. The rise in price on these days did not come with a normal corresponding decline in market volatility. Volatility has increased.

It indicates traders should be cautious, that a small correction may be coming sooner rather than later.


AD Line daily 2018
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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 longer term 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.

Only mid and large caps made new all time highs last week. There is some weakness with small caps unable to make new all time highs; this is slightly bearish.

Breadth should be read as a leading indicator. Price moved higher today, but the AD line moved lower. The rise in price today did not have support from rising market breadth. This divergence is bearish.


The S&P500, DJIA, DJT and Nasdaq last week all made new all time highs. The ongoing bull market is confirmed.

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 @ 08:54 p.m. EST.