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Both VIX and the AD line today give the same signal, suggesting the direction for tomorrow.

Summary: A short term Elliott wave target is 2,744. A short term classic analysis target is 2,811. At about one of these points a small consolidation or pullback may be expected.

For the short term, divergence today between price and VIX and the AD line suggests a downwards day tomorrow. A target would be about 2,651, finding support about the upper edge of the triangle trend line.

The long to mid term Elliott wave target is at 2,922, and a classic analysis target is now at 3,045.

Corrections are an opportunity to join the trend.

New all time highs this week, from both the AD line and On Balance Volume, give a high level of confidence to the expectation that price is likely to follow through to new all time highs.

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

New updates to this analysis are in bold.

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

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

An alternate idea at the monthly chart level is given here at the end of this analysis.

An historic example of a cycle degree fifth wave is given at the end of the analysis here.



S&P 500 Weekly 2018
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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.

Intermediate wave (4) has breached an Elliott channel drawn using Elliott’s first technique. The channel is redrawn using Elliott’s second technique: the first trend line from the ends of intermediate waves (2) to (4), then a parallel copy on the end of intermediate wave (3). Intermediate wave (5) may end either midway within the channel, or about the upper edge.

Intermediate wave (4) may now be a complete regular contracting triangle lasting fourteen weeks, one longer than a Fibonacci thirteen. There is perfect alternation and excellent proportion between intermediate waves (2) and (4).

If intermediate wave (4) were to continue further as either a flat or combination, both possibilities would require another deep pullback to end at or below 2,532.69. With both On Balance Volume and the AD line making a new all time highs, that possibility looks extremely unlikely.

If intermediate wave (4) were to continue further, it would now be grossly disproportionate to intermediate wave (2). Both classic technical analysis and Elliott wave analysis now suggest these alternate ideas should be discarded based upon a very low probability.


S&P 500 Daily 2018
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It is possible that intermediate wave (4) is a complete regular contracting triangle, the most common type of triangle. Minor wave E may have found support just above the 200 day moving average and ending reasonably short of the A-C trend line. This is the most common look for E waves of triangles.

Intermediate wave (3) exhibits no Fibonacci ratio to intermediate wave (1). It is more likely then that intermediate wave (5) may exhibit a Fibonacci ratio to either of intermediate waves (1) or (3). The most common Fibonacci ratio would be equality in length with intermediate wave (1), but in this instance that would expect a truncation. The next common Fibonacci ratio is used to calculate a target for intermediate wave (5) to end.

Price has clearly broken out above the upper triangle B-D trend line. This indicates that it should now be over if the triangle is correctly labelled.

A resistance line in lilac is added to this chart. It is the same line as the upper edge of the symmetrical triangle on the daily technical analysis chart. Upwards movement has sliced cleanly through this line, finding no resistance before breaking it. This line may offer some support for any pullbacks.

Sometimes the point at which the triangle trend lines cross over sees a trend change. A trend change at that point may be a minor one or a major one. That point is now about the 5th of June.


S&P 500 Hourly 2018
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Intermediate wave (5) must subdivide as either an impulse or an ending diagonal. An impulse is much more common and that shall be how this is labelled, until price shows otherwise.

So far minor wave 1 may be incomplete and subdividing as an impulse.

Within minor wave 1, minute waves i, ii, iii and now iv may all be complete. Only minute wave v upwards may now be needed to complete a five wave impulse. However, minute wave iii is slightly shorter than minute wave i, so minute wave v is limited to no longer than equality in length with minute wave iii (so that the core Elliott wave rule stating a third wave may never be the shortest is met).

Redraw the channel about upwards movement as shown using Elliott’s first technique. If minute wave iv continues sideways and lower when markets open tomorrow, then it should find support about the lower edge of this channel. Minute wave iv may not move into minute wave i price territory below 2,683.26.

If minute wave iv moves lower, then the target of minute wave v to end must also move correspondingly lower.


S&P 500 Hourly 2018
Click chart to enlarge.

It is also possible today that minor wave 1 is a complete five wave impulse. The middle portion of minuette wave (iii) does not have as good a look for this wave count as the first wave count, but the S&P does not always have good looking impulses.

This second hourly wave count today has support from classic technical analysis. Bearish divergence between price and VIX and the AD line suggests a pullback about here.

Minor wave 1 may have lasted seven days. Minor wave 2 may be expected to last about three to eight days to have reasonable proportion to minor wave 1. Targets for minor wave 2 may be the 0.382 and 0.618 Fibonacci ratios, with the 0.618 Fibonacci ratio slightly favoured, which is also where price may find support: at the blue triangle trend line copied over from the daily chart.



S&P 500 weekly 2018
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A classic symmetrical triangle pattern may be forming. These are different to Elliott wave triangles. Symmetrical triangles may be either continuation or reversal patterns, while Elliott wave triangles are always continuation patterns and have stricter rules.

The vertical green lines are 73% to 75% of the length of the triangle from cradle to base, where a breakout most commonly occurs.

From Dhalquist and Kirkpatrick on trading triangles:

“The ideal situation for trading triangles is a definite breakout, a high trading range within the triangle, an upward-sloping volume trend during the formation of the triangle, and especially a gap on the breakout.”

For this example, the breakout may have happened last week. There is a high trading range within the triangle, but volume is declining.


S&P 500 daily 2018
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The symmetrical triangle may now be complete, and price has completed an upwards breakout. There may be some small cause for concern that the upwards breakout does not have support from volume. However, in current market conditions only some small concern is had here. Rising price on light and declining volume has been a feature of this market for many months, yet price continues to rise.

After an upwards breakout, pullbacks occur 59% of the time. A pullback may find support at the upper triangle trend line and may be used as an opportunity to join a trend.

The base distance is 340.18. Added to the breakout point of 2,704.54 this gives a target at 3,044.72. This is above the Elliott wave target at 2,922, so the Elliott wave target may be inadequate.

For the short term, the next smaller consolidation or pullback may come about 2,811. This shorter term target is calculated using the measuring gap. That gap may now provide support and may be used to pull up stops on long positions.

On Balance Volume has made a new all time high, providing a very strong bullish signal; expect price to follow.

Volume supports upwards movement and On Balance Volume makes another new all time high at this time frame. This is very bullish.


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 still a cluster of bullish signals on inverted VIX. Overall, this may offer support to the main Elliott wave count.

Inverted VIX is much higher than the prior swing high of the 9th / 13th March, but price is not yet. Reading VIX as a leading indicator, this divergence is bullish.

Price moved higher today, with a higher high and a higher low, but inverted VIX has moved lower. This divergence is bearish and suggests a downwards day tomorrow.


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. New all time highs from the AD line means that any bear market may now be an absolute minimum of 4 months away. It may of course be a lot longer than that. My next expectation for the end of this bull market may now be October 2019.

Small caps have made a new all time high last week, but mid and large caps have yet to do so. This divergence may be interpreted as bullish. Small caps may now be leading the market.

Breadth should be read as a leading indicator.

There has been a cluster of bullish signals from the AD line in the last few weeks. This also overall offers good support to the main Elliott wave count.

The AD line has made another new all time high. This is a very strong bullish signal, and is one reason today why the more bearish Elliott wave counts are discarded. It is extremely likely now that price shall follow with a new all time high.

Price moved higher today, with a higher high and a higher low, but the AD line has declined. This divergence is bearish and suggests a downwards day tomorrow.


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: 23,360.29.

DJT: 9,806.79.

S&P500: 2,532.69.

Nasdaq: 6,630.67.

At this stage, only DJIA has made a new major swing low. DJT also needs to make a new major swing low for Dow Theory to indicate a switch from a bull market to a bear market. For an extended Dow Theory, which includes the S&P500 and Nasdaq, these two markets also need to make new major swing lows.

Charts showing each prior major swing low used for Dow Theory may be seen at the end of this analysis here.

Published @ 08:40 p.m. EST.