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For the very short term, for Friday’s session, a pullback to about 2,828 was expected. A pullback did unfold but was deeper than expected, reaching 2,808.

Summary: Look out for some consolidation next week before the resumption of the upwards trend.

The bigger picture remains extremely bullish. But short term bearish divergence between price and the AD line, along with a Shooting Star candlestick pattern, provide a strong warning here for a pullback or consolidation that may have begun on Friday and may continue next week.

The next target is about 2,915, where another consolidation to last about two weeks may be expected.

The invalidation point remains at 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.

It is possible that minute wave iii could be over at this week’s high; if it is complete here, it would not exhibit a Fibonacci ratio to minute wave i. If minute wave iv unfolds next week, then it must be very shallow to remain above minute wave i price territory at 2,791.47.

It is also possible that only minuette wave (iii) within minute wave iii was over at this week’s high, but this idea has less support at the end of this week from classic technical analysis. If minuette wave (iv) continues next week, then it may not move into minuette wave (i) price territory below 2,743.26.

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.

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.

MAIN HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Both hourly charts show all of minute wave iii from its start at 2,691.99 on the 28th of June.

This is the main hourly chart because it expects a shallow consolidation to continue next week. This idea has support from a Shooting Star candlestick pattern and bearish divergence between price and the AD line.

If minute wave iii was over at the last high, then there are reasonable Fibonacci ratios within it.

Minute wave ii was a very deep 0.87 single zigzag lasting 11 sessions. Minute wave iv may be a very shallow sideways type of correction: a flat, combination or triangle. These would exhibit alternation with minute wave ii.

All of a flat, combination or triangle may include a new high above the start of minute wave iv at 2,848.03, as in an expanded flat, running triangle or wave X of a combination. There is no upper invalidation point for this reason.

Minute wave iv may not move into minute wave i price territory below 2,791.47.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

It is also possible that only minuette wave (iii) was over at the last high and that minute wave iii may be incomplete. This would allow minute wave iii to move further away from the high of minute wave i at 2,791.47, which would then allow more room for minute wave iv to unfold and remain above first wave price territory.

The Fibonacci ratios for this alternate are not quite as good as the main wave count.

Minuette wave (iv) for this wave count may be over at Friday’s low, finding support almost right on the lower edge of the green Elliott channel.

If it continues further, minuette wave (iv) may not move into minuette wave (i) price territory below 2,743.26.

If price moves below 2,791.47 early next week, then the main hourly wave count would be invalidated. That would leave only this alternate wave count valid, which is more bullish, but allows for more downwards movement and a deeper pullback prior to new highs.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Recent new highs for On Balance Volume remains very bullish indeed, but that does not preclude another reasonable pullback within this developing upwards trend. It is still expected that price is very likely to make new all time highs, but it will not move in a straight line.

A Doji candlestick followed now by a Shooting Star, which did not gap higher, is reasonably bearish for the short term. A pullback or small consolidation may result.

Bullish volume and another new all time high from On Balance Volume are very strong bullish signals.

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.

Stochastics may remain overbought for reasonable periods of time when this market has a strong bull run.

This bull run now has some support from volume and strong support from On Balance Volume making new all time highs.

RSI is almost overbought, and it can remain there for long periods of time for this market.

For the very short term, Thursday’s candlestick may be a Gravestone Doji, which is a bearish reversal pattern. This is now followed by a Bearish Engulfing reversal pattern for Friday. These together are a strong warning that a consolidation or pullback may develop here.

Look for the first strong support at about 2,800 to 2,810. Next strong support below that is about 2,765.

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.

There is bearish divergence at this time between swing highs of inverted VIX and price, and now two weeks in a row of upwards movement from price and downwards movement from inverted VIX. This is now a reasonable warning of a possible pullback or consolidation, but it is not as strong a warning as that back in January. The last two weeks of upwards movement in price is not particularly strong (completing a Doji and a Shooting Star, not strong upwards candlesticks), so this divergence is not as significant.

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.

There is new short term bearish divergence today between price and inverted VIX: inverted VIX has made a new low below its prior swing low six sessions ago, but price has not made a corresponding new low.

There is now a cluster of bearish signals from inverted VIX.

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.

Price moved higher this week, but the AD line moved lower. This single week divergence is bearish for the short term.

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.

A new all time high from the AD line on Thursday remains very bullish. For the short term, there is no bearish divergence between price and the AD line at the daily chart time frame.

Small caps have made another slight new all time on Friday. Mid caps made a new all time high on the 10th of July. 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 @ 03:54 a.m. EST on 28th July, 2018.