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A small inside day fits the Elliott wave count.

At the end of the week, VIX and the AD line and On Balance Volume are all giving signals which are in agreement.

Summary: Bearish signals at the end of the week from VIX and the AD line and On Balance Volume all favour the idea that a pullback is not over. Some more sideways and lower movement is expected next week. In the first instance, look for support about 2,701.

If price makes a high above 2,742.24 with signs of strength, then the pullback should be over; expect an increase in upwards momentum as a third wave unfolds.

Pullbacks are an opportunity to join the trend.

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

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.



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.

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 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.

Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,594.62.


S&P 500 Daily 2018
Click chart to enlarge.

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 below 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 trend 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. Price is finding support at that line so far. A breach of that line does not mean the classic triangle is invalid and that price must make new lows, only that the pullback is deeper. Look for next support at the blue Elliott wave triangle B-D trend line.

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 7th of June.


S&P 500 Hourly 2018
Click chart to enlarge.

Minor wave 1 may have been over. Now minor wave 2 may be continuing.

Minor wave 2 may still be about halfway through, and it may be either a combination or a flat correction. At this stage, bearish signals from VIX and the AD line and On Balance Volume suggest downwards movement as imminent, so a combination is favoured.

If minor wave 2 is a combination, then the first structure in a double may be a complete zigzag labelled minute wave w. The double may now be joined by an incomplete three in the opposite direction, an incomplete zigzag labelled minute wave x. There is no minimum requirement for X waves within combinations, nor is there a maximum limit. When minute wave x is complete, then the second structure in a double may unfold labelled minute wave y. Minute wave y may be either a flat or triangle that may end close to the same level as minute wave w at 2,707.38, so that the whole structure moves sideways and takes up time.

If minor wave 2 is a flat correction, then within it minute wave b must retrace a minimum 0.9 length of minute wave a at 2,738.75 or above. Minute wave b may make a new high above the start of minute wave a. At the end of this week, bearish signals for the short term from VIX and the AD line and On Balance Volume expect that upwards movement here may be too limited for a flat correction to unfold. This now looks less likely.

Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.


S&P 500 Hourly 2018
Click chart to enlarge.

This alternate wave count is identical to the main hourly wave count with the exception of the degree of labelling within minor wave 2.

It is possible that minor wave 2 is over as a very brief and shallow zigzag. Minor wave 3 may have begun. The target for minor wave 3 to end is equality in length with minor wave 1, because minor wave 2 was shallow.

This wave count at this stage must be judged as less likely than the main wave count because of the brevity of minor wave 2.

If price makes a new high above 2,742.24 with support from volume and a bullish signal from one of the AD line or On Balance Volume, then this wave count would increase in probability.



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

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 now happened. There was a high trading range within the triangle, but volume declined. A downwards week may be a typical pullback following the breakout. If the pullback is not over, then expect support still about the upper edge of the symmetrical triangle top trend line.


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

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 years, 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.

Symmetrical triangles suffer from many false breakouts. If price returns back into the triangle, then the breakout will be considered false and the triangle trend line will be redrawn.

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. This gap at 2,701.27 so far this week continues to provide support; expect it may continue to do so next week until proven otherwise.

The short term volume profile remains bullish, but the bearish signal from On Balance Volume should be given more weight. Expect at least some more downwards movement here.


VIX daily 2018
Click chart to enlarge. Chart courtesy of 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.

Bullish divergence noted in last analysis has been followed by a small inside day.

Now there is new bearish divergence: inverted VIX has made a new low below the low three sessions prior, but price has not. This may be now followed by one or two downwards days to resolve it.


AD Line daily 2018
Click chart to enlarge. Chart courtesy of

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 continue to make new all time highs, 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 new strong all time high is extremely bullish and supports the Elliott wave count, which expects price to follow through.

The AD line has made a new small swing low below the low three to four sessions prior, but price has not. This divergence is bearish. Price may follow with a new low.


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 @ 06:00 p.m. EST on 26th May, 2018.