Select Page

The week has begun with a green daily candlestick, but it has a slightly lower low and a lower high than Friday’s session.

Price remains above the short term invalidation point and within the small channel on the hourly chart.

Summary: The bigger picture is that this bull market is ageing, but there is not yet enough technical evidence that it is fully mature. The Elliott wave count is also incomplete.

On Balance Volume and the AD line last week both made new all time highs. This is extremely bullish. Expect upwards movement as very likely this week.

Use the new best fit channel on the daily chart for possible support for any deeper pullbacks. Pullbacks are an opportunity to join the trend.

The next short term target is about 2,878; a consolidation lasting about one to two weeks may be expected at about this target. Following that, another consolidation lasting about two weeks may be expected about 2,915.

The invalidation point may now be moved up to 2,743.26.

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.

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

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 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. However, the lower edge of the black Elliott channel drawn across the ends of intermediate degree waves should provide very strong support for any deeper pullbacks, holding price well above the invalidation point while intermediate wave (5) unfolds.

At this stage, the expectation is for the final target to me met in October 2019.

A multi week to multi month consolidation for primary wave 4 is expected on the way up to the final target.

The last bullish fifth wave of minor wave 5 to end intermediate wave (3) exhibited commodity like behaviour. It was strong and sustained. It is possible that the upcoming wave of minor wave 5 to end intermediate wave (5) to end primary wave 3 may exhibit similar behaviour, so we should be on the lookout for this possibility.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

Intermediate wave (5) would be very likely to make at least a slight new high above the end of intermediate wave (3) at 2,872.87 to avoid a truncation.

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.

A target is now calculated for minute wave iii to end, which expects to see the most common Fibonacci ratio to minute wave i. Minute wave iii may last a few weeks. When it is complete, then minute wave iv may last about one to two weeks in order for it to exhibit reasonable proportion to minute wave ii. Minute wave iv must remain above minute wave i price territory.

Minute wave iii may have passed its middle strongest portion. Although the structure could possibly be seen as complete at last week’s high, it has still not moved far enough above the end of minute wave i yet to allow room for minute wave iv to unfold and remain above minute wave i price territory. For that to happen it looks like minuette wave (v) may be a relatively long extension, so that minute wave iii moves higher.

A target is calculated for minor wave 3 to end, which expects to see the most common Fibonacci ratio to minor wave 1. Minor wave 3 may last several weeks in total and should look like an impulse at the daily chart level. When it is complete, then minor wave 4 may last about one to two weeks in order for it to exhibit reasonable proportion to minor wave 2. Minor wave 4 must remain above minor wave 1 price territory.

Within minute wave iii, minuette wave (i) is complete as labelled. Minuette wave (iv), if it continues lower, may not move into minuette wave (i) price territory below 2,743.26. With the AD line today moving lower, it is possible that minuette wave (iv) could continue tomorrow. A new hourly alternate wave count looks at this possibility.

A best fit channel is added in taupe to this chart. It contains all of intermediate wave (5) so far. The lower edge may provide support for any deeper pullbacks. The upper edge may provide resistance.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

The target for minute wave iii to end is now widened to a rather large 6 point zone, now calculated at two degrees. Favour the lower edge of the target zone as it is calculated at a lower degree.

When subminuette waves i, ii, iii and iv within minuette wave (v) are complete, then the target may be calculated at a third degree. At that stage, it may be refined to a smaller range.

The target for minute wave iii to end would see it move far enough above the end of minute wave i to allow room for minute wave iv to unfold and remain above minute wave i price territory.

Minuette wave (v) may end about the upper edge of the green Elliott channel. If it behaves like a commodity, then it is possible it could overshoot the upper edge of the channel.

Within minuette wave (v), subminuette wave ii may not move beyond the start subminuette wave i below 2,789.24.

Subminuette wave ii now fits as a double combination: expanded flat – X – zigzag. It should now be over at today’s low. Within subminuette wave iii, no second wave correction may move beyond the start of its first wave below 2,795.14.

This wave count so far still fits with MACD: the strongest middle portion as the third wave within a third wave has the strongest momentum.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

It is possible that minuette wave (iv) is not over and may continue sideways or lower this week.

Minuette wave (iv) may be any one of a triangle, flat or combination. At this stage, a triangle has a better look as one possible structure. If minuette wave (iv) continues further tomorrow, then it may overshoot the green Elliott channel. Fourth waves are not always contained within channels. If it overshoots the channel, then the channel must be redrawn using Elliott’s second technique: the first trend line from the ends of 2 to 4, then a parallel copy on the end of 3.

If minuette wave (iv) does continue as a triangle, then within the triangle subminuette wave e should be a single zigzag and may not move beyond the end of subminuette wave c below 2,795.14. Subminuette wave e would be most likely to fall short of the a-c trend line.

Minuette wave (iv) may not move into minuette wave (i) price territory below 2,743.27. This invalidation point allows for other structural possibilities to unfold for minuette wave (iv) in the next couple of days.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Much weight will be given in this analysis to the new all time high from On Balance Volume. Price usually follows where On Balance Volume leads. It is very reasonable here to expect a new all time high from price in coming weeks.

With volume also supporting another upwards week, this chart is very bullish.

The doji candlestick this week on its own is not a reversal signal. Doji represent a pause and can occur within a trend. There are a few examples in the prior bull run of doji on the weekly chart which were followed by more upwards movement and no reasonable pullback.

DAILY CHART

S&P 500 daily 2018
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. A higher high last week adds some confidence to this trend.

The measuring gap gives a short term target at 2,838. The gap has offered support. It remains open, and the target remains valid.

There is room still for price to continue higher: On Balance Volume remains extremely bullish, and RSI is not yet overbought.

Stochastics may remain overbought for long periods of time when this market has a strong bullish trend. Only when it reaches overbought and then exhibits clear divergence with price, then it may be useful as an indicator of a possible high in place. That is not the case yet.

Lighter volume for this last session, which has a balance of volume upwards, is of very little concern in current market conditions. Rising price on low ATR with light and declining volume was a feature of the last bull run up to January 2018, and it may again be a returning feature of this market.

Monday’s candlestick is fairly bullish, with a slightly long lower wick and a close very close to highs for the session.

VOLATILITY – INVERTED VIX CHART

WEEKLY CHART

VIX daily 2018
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.

To keep an eye on the all time high for inverted VIX a weekly chart is required at this time.

Notice how inverted VIX has very strong bearish signals four weeks in a row just before the start of the last large fall in price. At the weekly chart level, this indicator may be useful again in warning of the end of primary wave 3.

Price moved higher last week, but inverted VIX moved lower. This divergence is bearish. A single week of this bearish divergence is not a very loud warning though.

DAILY CHART

VIX daily 2018
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.

Monday’s session moved price lower, but the candlestick was green and the balance of volume was upwards. Upwards movement within the session has support from rising inverted VIX and declining market volatility.

BREADTH – AD LINE

WEEKLY CHART

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

When primary wave 3 comes to an end, it may be valuable to watch the AD line at the weekly time frame as well as the daily.

At this stage, there is very strong bullish divergence between price and the AD line at the weekly time frame. With the AD line making new all time highs, expect price to follow through with new all time highs in coming weeks.

Yet another new all time high last week from the AD line is again extremely bullish.

DAILY CHART

AD Line daily 2018
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.

Breadth should be read as a leading indicator.

Overall, recent new all time highs from the AD line remain extremely bullish for the longer term trend.

Price may reasonably be expected to follow through in coming weeks.

Monday saw price move lower and the AD line decline. However, the candlestick was green and the balance of volume was upwards. Upwards movement during Monday’s session does not have support from rising market breadth. This divergence is considered bearish, but it is very weak as the direction for Monday is not clear.

Small caps have made another new all time high. Mid caps made a new all time high. Only large caps have to follow through; they do usually lag in the latter stages of a bull market.

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, with another new all time high on Friday of last week. 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 @ 07:28 p.m. EST.