The main Elliott wave count expected upwards movement, which is what has happened for Monday.
Signals today from all of On Balance Volume, inverted VIX and the AD line are all in agreement over the direction for the short term.
Summary: A bullish signal from On Balance Volume, and bullish divergence from both the AD line and inverted VIX, all support the main Elliott wave count which expects upwards movement from here.
A new high above 2,757.12 would provide confidence that a low is in place. The target would then be about 2,849; a consolidation lasting about two weeks may be expected at about this target.
A new low below 2,691.99 would indicate the pullback is continuing and should then end at least slightly below 2,676.81. The target is about 2,664.
The invalidation point must remain at 2,594.62.
The mid to longer term target is at 2,922 (Elliott wave) or 3,045 (classic analysis). Another multi week to multi month correction is expected at one of these targets.
The final target for this bull market to end remains at 3,616.
Pullbacks are an opportunity to join the trend.
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.
ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Cycle wave V must complete as a five structure, which should look clear at the weekly chart level and also now at the monthly 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).
Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,594.62.
DAILY CHART
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. Price found support about this line.
Minor wave 1 may have been over at the last high. Minor wave 1 will subdivide as a five wave impulse on the hourly chart; the disproportion between minute waves ii and iv gives it a three wave look at the daily chart time frame. The S&P does not always exhibit good proportions; this is an acceptable wave count for this market.
It looks like minor wave 2 for this first daily wave count should be over here. The structure at lower time frames looks complete.
A target is calculated for minor wave 3 to end.
Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.
HOURLY CHART
Click chart to enlarge.
Minor wave 2 may now be a complete zigzag; all subdivisions fit for a 5-3-5 downwards. A best fit channel is drawn about this downwards movement. The channel is breached, giving a first indication that a low may be in place. A new high now above 2,757.12 would add confidence that a low is in place.
Upwards movement labelled minuette wave (i) looks best as a five, and downwards movement labelled minuette wave (ii) looks best as a three. This wave count has the best fit for most recent movement.
The two hourly wave counts differ in where the leading diagonal at the start of the downwards movement is seen to end. This labelling has the better fit; the leading diagonal for minute wave a fits all Elliott wave rules.
Minuette wave (ii) may not move beyond the start of minuette wave (i) below 2,691.99.
ALTERNATE DAILY CHART
Click chart to enlarge.
It is possible that minor waves 1 and 2 are already over. The last high may have been minute wave i. Minute wave ii may need one more low to be complete.
Minute wave ii may not move beyond the start of minute wave i below 2,676.81.
This alternate wave count resolves the problem of an odd looking minor wave 1 for the main wave count. The only problem with this alternate wave count is minute wave ii is not contained within a base channel which would be drawn about minor waves 1 and 2.
This wave count is very bullish. It expects to see a very strong upwards movement as the middle of a third wave begins here.
SECOND ALTERNATE DAILY CHART
Click chart to enlarge.
It is also possible that minor wave 1 ended earlier and downwards movement is the end of an expanded flat correction for minor wave 2.
The 0.618 Fibonacci ratio of minor wave 1 here would be about 2,651. This would be very slightly below the lower edge of the black Elliott channel and slightly below the 200 day moving average.
This second alternate wave count expects a somewhat deeper pullback about here to make a new low below the end of minute wave a at 2,676.81, so that minute wave c avoids a truncation and minor wave 2 avoids a running flat correction. If the pullback ends about the lower edge of the black Elliott channel, then that would be now about 2,664.
Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.
SECOND ALTERNATE HOURLY CHART
Click chart to enlarge.
Minuette wave (i) may have ended earlier. This leading expanding diagonal still meets all Elliott wave rules, but the end of subminuette wave ii is truncated. This reduces the probability of this wave count.
A channel is drawn about this possible impulse using Elliott’s second technique. Minuette wave (v) may end either mid way within the channel, or about the lower edge.
Minute wave c would be very likely to make at least a slight new low below 2,676.81 to avoid a truncation and a very rare running flat.
Minuette wave (iv) may not move into minuette wave (i) price territory above 2,757.12.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Downwards movement of the last two weeks still looks most likely as a pullback within a developing upwards trend. Long lower candlestick wicks, a lack of support from volume, and nearby support from On Balance Volume all look bullish.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The symmetrical triangle may now be complete. 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.
Since the low on the 2nd of April, 2018, price has made a series of higher highs and higher lows. This is the definition of an upwards trend. But trends do not move in perfectly straight lines; there are pullbacks and bounces along the way. While price has not made a lower low below the prior swing low of the 29th of May, the view of a possible upwards trend in place should remain. Note though that the second alternate Elliott wave count allows for a new swing low yet expects a third wave upwards to begin from there. This is entirely possible.
A bullish signal on Friday from On Balance Volume suggests a low may now be in place.
Monday moved price lower with a lower low and a lower high, but the candlestick closed green and the balance of volume was upwards. Monday’s candlestick is very bullish, closing almost at the high.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com. 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.
Inverted VIX has made a new high above the prior swing high of the 9th of March, but price has not made a corresponding new swing high about the same point yet. This divergence is bullish. Inverted VIX is still a little way off making a new all time high.
There is mid term bearish divergence between price and inverted VIX: inverted VIX has made a new swing low below the prior swing low of the 29th of May, but price has not. Downwards movement has strong support from increasing market volatility; this divergence is bearish. However, it must be noted that the last swing low of the 29th of May also came with bearish divergence between price and inverted VIX, yet price went on to make new highs.
This divergence may not be reliable. As it contradicts messages given by On Balance Volume and the AD line, it shall not be given much weight in this analysis.
Inverted VIX has made a new high above it’s prior swing high 4 sessions ago, but price has not made a corresponding new high. This divergence is interpreted as bullish, as VIX is read as a leading indicator.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
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 and mid caps have both recently made new all time highs. It is large caps that usually lag in the latter stages of a bull market, so this perfectly fits the Elliott wave count. Expect large caps to follow to new all time highs.
Breadth should be read as a leading indicator.
The AD line has made a new high above its prior small swing high 4 sessions ago, but price has not. This divergence is bullish, although it is not very strong.
Overall, the AD line still remains mostly bullish as it has made more than one new all time high last week. Price may reasonably be expected to follow through in coming weeks.
DOW THEORY
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.
Only Nasdaq at this stage is making new all time highs. DJIA and DJT need to make new all time highs for the ongoing bull market to be confirmed.
Charts showing each prior major swing low used for Dow Theory may be seen at the end of this analysis here.
Published @ 09:10 p.m. EST.
main hourly updated:
a series of overlapping first and second waves is possible here
alternate hourly updated:
a triangle may be unfolding for a fourth wave
Triangle looking good…! Expecting sharp reversal at 2680.
Thanks for the update. 🙂
You’re welcome. Sorry it was a bit late again.
RUT is living in the land of make believe!
Watch it play catch up. This ought to be fun…!
Can someone say Triple? 🙂
Selling USO July 20 expiration 15.50/16.00 bear call credit spread for 0.11 per contract.
Adding to bear call spreads. SPY 274/275 July week three bear call credit spread, 250 contracts.
Credit of 0.42 per contract.
Will exit short leg on, break even, any CLOSE above SPY 275, or hold through expiration if strike prices not approached.
Have a great fourth those of you in the good ‘ole USA, and Rodney do have a WILD time in the wilderness!! 🙂
SPX formed a higher low on the hourly, then failed to make a high above the prior (triangle/wedging pattern). RUT on the other hand has good relative strength, and DID make a higher high after a higher swing low on the hourly.
I’ll be looking for long opportunity in RUT here on the conclusion of this hourly tf swing down for this reason, and because trade war impacts shouldn’t hit it, in fact, it could benefit as a flight to safety.
Maybe minute ii in SPX is a triangle?
Appears to be a larger degree sideways coil, entered in a downtrend…
second waves can’t be triangles, not their sole corrective structure anyway
China had a very strong close for the first time in a while, and even if it’s only temporary, a reversal in China could signal an interim bottom. Shanghai is now less than 5% from the early 2016 lows. USD/CNY also sporting a shooting star doji on the daily.
I am still of the opinion that unless credit destabilizes, Lara’s main count is the way to go.
Some rumors that China will announce a major new set of tariffs on Wed-Thurs. Could have some “headline impact” instantly if it happens. Just rumor.
Would be interesting if that comes to fruition, but I find it difficult to believe they will continue digging their own grave like this. As the markets have illustrated, an escalating trade war hurts China far more than the U.S.
Ominous price action in NQ. Eight upward 1 hour candles demolished in two downward ones. SPX unlikely to clear critical 2750 pivot without a strong move higher in Tech. If this is the start of an impulse lower in Nasdaq, other indices will probably follow.
Lara your analysis and commentary are priceless. The main count has been right on since mid-February forward. I am still fully long and intend to play this out for a profitable long term trade with little (or much less) day to day concerns.
Today I leave for 10 days in the mountains. I will be traveling through some of the highest density black bear area in North America. Lets hope I see one from a distance. Also mountain lions, also called cougars, are plentiful in this area. However, cougars are the stealthiest of all North American animals. They are difficult to spot even though they see you.
Have a great couple of weeks all. Be back soon.
Have fun and stay safe Rodney. I had a mountain lion walk right by me middle of the day (okay…it was 30 feet away) once on the edge of the coastal wilderness west of Healdsburg (north of San Francisco). I was absolutely still as it came around the corner and padded up the dirt road, and I thought at first it was a house cat, but quickly realized that no cat is 3+ feet long! When I finally moved (I didn’t want it to get any closer), the cat jumped two feet high and took off like a lightning bolt. I don’t know which of us was more surprised. This was all about 1000 yards away from a small church ranch that probably had 80 people at it for a retreat. Amazing!!
EEM is breaking it’s several weeks long sharp down trend on the hourly chart, and at EEM > 43.44, will polarity invert to bull mode.
I’m intending to use a call ratio backspread on this with expiry about a month out if it behaves as expected here. EEM option liquidity is exceptional, it’s a great trading instrument.
On the bullish side, the weekly is flashing “end of 4 weeks of squeeze” on the action so far this week. Here’s the chart showing that and the last squeeze, back in yes, November of 2016. Followed by strong upward price momentum and one of the biggest bull market runs in stock market history. There are some traders for whom squeezes and squeeze exits are primary set ups and triggers. We’ll see this time. It’s always possible that a range expansion out of the squeeze occurs to the down side, too. But given the strong up trend at the monthly time frame, it has to be viewed as far less likely.