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Last analysis warned that divergence between price and the AD line was bearish, thus a correction may come sooner than expected. Downwards movement to start the new trading week fits this description.

Summary: Another small correction looks to have arrived. It may be over at today’s low, or it may continue sideways for another couple of days or so. Bearish divergence again between price and the AD line supports the view that the correction which began today is not over. This supports the alternate hourly Elliott wave count.

The next target is at 2,951. The long term preferred target is at 3,616.

This looks like a third wave that is still incomplete. It may have just passed the middle strongest portion, so look for volatility to increase as a series of fourth waves unfold.

Always practice good risk management. Always trade with stops and invest only 1-5% of equity on any one trade.

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

Last historic analysis with monthly charts is here. Video is here.

An historic example of a cycle degree fifth wave is given at the end of the analysis 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. This target at 2,926 now looks too low. The next most common Fibonacci ratio would be 2.618 the length of cycle wave I at 3,616. This higher target is looking more likely at this stage.

Intermediate wave (3) has passed all of equality in length with intermediate wave (1), and 1.618 and 2.618 the length of intermediate wave (1). It is possible that intermediate wave (3) 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. An Elliott channel may be drawn about the impulse of intermediate wave (3) when minor wave 3 is complete, and minor wave 4 may end about the lower edge of that channel.

At this stage, a widened acceleration channel is drawn now in blue about the impulse of intermediate wave (3). This is drawn in the same way as an Elliott channel using Elliott’s first technique.

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. Members are advised to review the prior example given of a cycle degree fifth wave here. The purpose of publishing this example is to illustrate how indicators may remain extreme and overbought for long periods of time when this market has a strong bullish trend. If the current wave count is correct, then the equivalent point to this historic example would be towards the end of the section delineated by the dates November 1994 to May 1996. In other words, the upwards trend for this fifth wave may only have recently passed half way and there may be a very long way up to go yet.


S&P 500 Daily 2018
Click chart to enlarge.

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 lower down to contain all this upwards movement. When minute wave iii is complete, this would be an adjusted Elliott channel and the lower edge may provide support for minute wave iv.

The focus for the short term will be on identifying the next multi week interruption to the upwards trend.

A target for minuette wave (iii) fits only with the second higher target on the weekly chart.

Minuette wave (ii) subdivides as a combination and lasted only eight sessions, about only one and a half weeks. Minuette wave (iv) may be a zigzag, which tend to be quicker structures than combinations; a Fibonacci five days will be the first expectation, but it may be over within less than one week.

Because minuette wave (i) was a long extension, minuette wave (iii) may be shorter or only about equal in length. If minuette wave (iii) is about equal in length with minuette wave (i), then they would both be long extensions. Only two actionary waves within an impulse may be extended. If both minuette waves (i) and (iii) are extended, then minuette wave (v) may not extend.

Minuette wave (iv), when it arrives, may not move into minuette wave (i) price territory below 2,694.97.


S&P 500 Hourly 2018
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Always assume that the trend remains the same until proven otherwise. At this stage, there is no technical evidence for a trend change; we should assume the trend remains upwards.

Subminuette wave iii is extending. Subminuette wave iii passed equality in length with subminuette wave i at 2,821.59. The next Fibonacci ratio in the sequence to calculate a target would be 1.618 the length of subminuette wave i at 2,874, but price is now very close to this point and the structure of micro wave 5 is incomplete.

A new target for subminuette wave iii to end is calculated at micro degree. Micro wave 3 is a little longer than micro wave 1, so micro wave 5 is not limited; the core Elliott wave rule stating micro wave 3 may not be the shortest actionary wave is met. Because micro wave 3 does not exhibit a Fibonacci ratio to micro wave 1, it would be more likely that micro wave 5 may exhibit a Fibonacci ratio to either of micro waves 1 or 3, and equality in length with micro wave 1 is the most common Fibonacci ratio.

Micro wave 5 must complete as a five wave structure. It is unfolding as the more common impulse. Within the impulse, submicro wave (4) may not move into submicro wave (1) price territory below 2,843.77.

Submicro wave (4) may be over as a zigzag, exhibiting alternation with the combination of submicro wave (2). However, there is not enough upwards movement at the end of Monday’s session to indicate submicro wave (4) is over. It may continue a little lower when markets open tomorrow.

A new low below 2,843.77 would see this main hourly wave count invalidated and the alternate hourly wave count below should then be used.

Weak volume for Monday’s downwards movement supports this main hourly wave count today.


S&P 500 Hourly 2018
Click chart to enlarge.

If micro wave 4 is seen as a double combination rather than a zigzag, then it may have ended later at the last small swing low.

This is an alternate wave count for two reasons:

1. Assume the trend remains the same until proven otherwise.

2. On the five minute chart, the structure of submicro waves (X) and (Y) is not as good as how this movement is seen on the main hourly chart.

However, if price makes a new low below 2,843.77 confidence may be had in this alternate wave count.

This wave count expects only a shallow brief interruption to the upwards trend though. Subminuette wave iv may end within the price territory of the fourth wave of one lesser degree.

Subminuette wave ii was very brief. Subminuette wave iv may be longer lasting if it is a more complicated time consuming combination, triangle or flat correction. All of these structures begin with micro wave A subdividing as a three, which may be a complete zigzag. Subminuette wave iv would be expected to be only a couple of days or so at the most. It may not move into subminuette wave i price territory below 2,759.14.

Subminuette wave iv may continue further sideways and may breach the orange Elliott channel. Fourth waves are not always contained within Elliott channels, and the S&P does have a tendency to breach bull channels by sideways movement, only to then continue on upwards. If subminuette wave iv does breach the channel, then the channel should be redrawn using Elliott’s second technique.

There is bearish divergence again between price and the AD line, which supports this wave count.



S&P 500 weekly 2018
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This upwards trend is extreme and stretched, but there is still no evidence of weakness at the weekly time frame.

There is no divergence to indicate any weakness yet between price and RSI.

As a third wave at multiple degrees comes to an end, it would be reasonable to see indicators at extreme levels.

A correction will come, but it looks like it may not be here yet.


S&P 500 daily 2018
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There is still no reasonable divergence to indicate weakness. This trend is extreme and overbought, but that can remain for long periods of time when this market has a strong bullish trend.

Monday’s session does not complete a Harami candlestick pattern. The real body for Monday is too large, and the real body for Friday is not long enough. A Harami pattern is an unusually long first candlestick, followed by a spinning top candlestick with the real body inside the first candlestick real body.


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 is strong divergence today between price and inverted VIX: although price moved lower this session, it has not made a new low below a prior low of the 18th of January, but inverted VIX has made a new low well below the prior swing low of the 18th of January. This is given a traditional interpretation which may be found here. The increase in volatility has not been matched by a new low for price; price is weak. This is bullish.


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.

All of small, mid and large caps last week made new all time highs. This market has good support from rising breadth.

Breadth should be read as a leading indicator.

Interpretation of breadth is different to VIX. This is because breadth should be read as a leading indicator. Breadth has made a new low today substantially below the prior low two sessions ago, but price has not. This is interpreted as bearish.

Bearish divergence in breadth is given more weight than today’s divergence between price and VIX, because recently breadth appears to be more reliable.


The S&P500, DJIA and Nasdaq last week made new all time highs. Only DJT did not make a new all time high and has moved lower. This divergence is slightly bearish; DJT may be leading by beginning a correction first.

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 @ 08:24 p.m. EST.