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A test of support about 2,912 was expected to begin the new trading week, which is exactly what has happened.

Summary: Upwards movement is expected to resume tomorrow. The short term target for the next pullback to arrive is about 2,957. The invalidation point is at 2,908.30; but support at the last gap may remain at 2,912.36, so price is not expected to get as low as the invalidation point.

The structure of minor wave 5 is incomplete. The target remains a small zone from 3,041 (Elliott wave) to 3,045 (classic analysis).

Members are advised now that bearish signals do not necessarily mean price must turn here; some bearishness may be expected to begin to develop and strengthen before primary wave 3 finds its end.

Gaps may be used to pull up stops; stops may now be pulled up to just below 2,912.36.

The final target for this bull market to end remains at 3,616, which may be met in October 2019.

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.

There is perfect alternation and excellent proportion between intermediate waves (2) and (4).

At this stage, the expectation is for the final target to me met in October 2019. If price gets up to this target and either the structure is incomplete or price keeps rising through it, then a new higher target would be calculated.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

Intermediate wave (5) avoided a truncation now that it has a new high above the end of intermediate wave (3) at 2,872.87.

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). Intermediate wave (5) has passed equality in length and 1.618 the length of intermediate wave (1). The next Fibonacci ratio in the sequence is 2.618 giving a target at 3,124. If the target at 3,045 is met and passed, then this would be the next calculated target.

A target for intermediate wave (5) to end is calculated at minor degree. Because this target is so close to the classic analysis target at 3,045, it does have a reasonable probability.

Intermediate wave (5) is unfolding as an impulse, and within it minor waves 1 through to 4 may now all be complete.

Within intermediate wave (5), minor wave 3 was extended and now minor wave 5 looks to be extending. When impulses extend, they show their subdivisions at higher time frames; within minor wave 5, now minute wave ii is clearly visible at the daily chart level. When minute wave iv arrives, it too may last a few days and show up on the daily chart.

Minute wave iii must subdivide as an impulse. It now looks like within it minuette waves (ii) and (iv) are showing up here on the daily chart; this is a typical look for a third wave.

If the degree of labelling within minute wave iii is moved down one degree, then no second wave correction may move beyond its start below 2,864.12.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Within minor wave 5, minute waves i and ii may now be complete. Minute wave iii may only subdivide as an impulse.

Within minute wave iii, minuette waves (i) through to (iv) may now be complete. It is also possible that minuette wave (iv) may continue sideways for another couple of days as a triangle, flat or combination.

Minuette wave (iii) exhibits no Fibonacci ratio to minuette wave (i), but it is longer than minuette wave (i). A target is calculated for minuette wave (v) to exhibit the most common Fibonacci ratio to minuette wave (i).

Minuette wave (iv) may not move into minuette wave (i) price territory below 2,908.30.

TECHNICAL ANALYSIS

WEEKLY CHART

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

The symmetrical triangle base distance is 340.18. Added to the breakout point of 2,704.54 this gives a target at 3,044.72. This is very close to the new Elliott wave target at 3,041.

This chart is completely bullish. RSI is not yet overbought, so there is room for price to rise.

DAILY CHART

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

Use the breakaway gap to pull up stops for long positions.

The breakaway gap has its lower edge at 2,012.36. The low for today’s session at 2,912.63 leaves this gap open. If this is a breakaway gap, then it should not be closed and should provide support. So far this downwards day looks like a typical test of support at prior resistance. It would now be typical for price to move up and away.

A new support line is drawn on On Balance Volume. This line has three tests: two prior to being breached and test of support after resistance was broken. This line has small technical significance; it may assist to halt the fall in price here.

The trend remains the same until proven otherwise. The trend at this time is clearly upwards. The target has not yet been met.

At this stage, this chart is mostly bullish even with bearish divergence still present between price and RSI and Stochastics. However, RSI is not extreme and ADX is not extreme. While the breakaway gap remains open, it would be safest to assume the upwards trend remains intact.

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.

At this time, there is mid term bearish divergence between price and inverted VIX: price has made another new all time high, but inverted VIX has not. This divergence may persist for some time. It may remain at the end of primary wave 3, and may develop further to the end of primary wave 5.

Upwards movement in price has support last week from a normal corresponding decline in market volatility. There is no new short term divergence.

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 mid term divergence with a new all time high from price not supported by a corresponding new all time high from inverted VIX. This divergence is bearish.

The fall in price today has a normal corresponding increase in market volatility. There is no new short term divergence; volatility has not increased beyond recent peaks.

Mid term bearish divergence between price and inverted VIX can be seen on both daily and weekly charts now. However, this may not be a good timing tool in identifying the end of primary wave 3; divergence may develop further before primary wave 3 ends.

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.

Price has made a new all time high last week, but it does not have support from rising market breadth. There is now short term bearish divergence at the weekly chart level between price and the AD line. It is possible now that the end of primary wave 3 is quite close.

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 on the 29th of August means that the beginning of any bear market may be at the end of December 2018, but 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.

Price has now made new all time highs last week, but the AD line has not. There is now short / mid term divergence at the daily chart level; this is bearish, and it may develop further before primary wave 3 comes to an end.

For the short term, the fall in price today has support from declining market breadth. The AD line is about even with the prior swing low of the 17th of September (it is very slightly above this point). Price is above its equivalent point. There is no short term divergence.

All of small, mid and large caps made new all time highs on the 27th of August. There is a little divergence here in breadth with large caps continuing to make new all time today and small and mid caps lagging.

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.

Nasdaq and DJT and now the S&P500 have all made recent new all time highs.

At the end of last week, DJIA has now also made a new all time high. This provides Dow Theory confirmation that the bull market continues.

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

ANALYSIS OF THE END OF INTERMEDIATE WAVE (3)

TECHNICAL ANALYSIS

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

This chart looked overly bullish at the end of intermediate wave (3). The only warning in hindsight may have been from volume spiking slightly on downwards days. There was no bearish divergence between price and either of RSI or On Balance Volume.

Single bearish divergence between price and Stochastics was weak, which is often an unreliable signal.

VIX

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

This is a daily chart.

The strongest warning of an approaching intermediate degree correction at the daily chart level came from inverted VIX.

There was strong double bearish divergence at the high of intermediate wave (3), which is noted by the vertical line. There was also a sequence of five days of bearish divergence, days in which price moved higher but inverted VIX moved lower.

AD LINE

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

This is a daily chart.

There was only single bearish divergence between price and the AD line at the end of intermediate wave (3). Approaching the high, there were no instances of price moving higher and the AD line moving lower.

Conclusion: When studying the behaviour of price and these indicators just before the start of intermediate wave (4), we may see some clues for warning us of primary wave 4. A cluster of bearish signals from VIX along with a bearish divergence from price and the AD line or On Balance Volume may warn of primary wave 4. The next instance will probably not behave the same as the last, but there may be similarities.

At this time, it does not look like primary wave 4 may begin right now, but we need to be aware of its approach.

Published @ 08:11 p.m. EST.


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