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Upwards movement indicates an alternate Elliott wave count looks more likely.

Today two Elliott wave counts are again presented as options.

Summary: This upwards bounce may continue now to about 2,895 or above. It may last a few more days as intermediate wave (B) or (X) within primary wave 4.

A primary degree correction should last several weeks and should show up on the weekly and monthly charts. Primary wave 4 may total a Fibonacci 8, 13 or 21 weeks. The preferred target for it to end is now about 2,717 but this may be a little too low. Look for very strong support about the lower edge of the teal trend channel on the monthly chart.

Primary wave 4 should be expected to exhibit reasonable strength. This is the last multi week to multi month consolidation in this ageing bull market, and it may now begin to take on some characteristics of the bear market waiting in the wings.

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 published monthly chart 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.

Within primary wave 3, there is perfect alternation and excellent proportion between intermediate waves (2) and (4).

The channel is now drawn about primary degree waves. The first trend line is drawn from the ends of primary waves 1 to 3, then a parallel copy is placed upon the low of primary wave 2. Primary wave 4 may find support about the lower edge of this maroon channel. At the end of last week, that is exactly where price bounced up. The overshoot of the upper edge of this channel by the end of intermediate wave (3) looks typical. For the S&P, its third waves are usually the strongest portion of an impulse; they often exhibit enough strength to overshoot channels.

Fourth waves do not always end within channels drawn using this technique. If primary wave 4 breaks out of the narrow maroon channel, then it may find very strong support about the lower edge of the teal channel. This channel is copied over from the monthly chart and contains the entire bull market since its beginning in March 2009. While Super Cycle wave (V) is incomplete, this channel should not be breached.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

When primary wave 4 may be complete, then the final target may be also calculated at primary degree. At that stage, the final target may widen to a small zone, or it may change.

At this stage, the expectation is for the final target to be 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.

Primary wave 4 would most likely end somewhere within the price territory of the fourth wave of one lesser degree. Intermediate wave (4) has its price territory from 2,872.87 to 2,532.69. Within this range sit two Fibonacci ratios giving two targets. The 0.236 Fibonacci ratio has now been met and passed.

The target for primary wave 4 at 2,578.30 would expect an overshoot of the teal channel. This target may be too low; price may find support at the lower edge of the channel. However, as primary wave 4 should be expected to exhibit reasonable strength, it may be able to overshoot the channel and that would look reasonable.

Primary wave 2 unfolded as a shallow regular flat correction lasting 10 weeks.

Primary wave 4 may have begun with a zigzag downwards. This may be a three wave structure for intermediate wave (A) of a flat or triangle for primary wave 4, with a triangle more likely as that would provide alternation with the flat correction of primary wave 2. The zigzag may also be labelled intermediate wave (W) of a double zigzag or combination for primary wave 4.

All of a flat, triangle, or double combination may include a new high for intermediate wave (B) or (X) as in an expanded flat, running triangle or wave (X) within a combination. There is no upper invalidation point for this reason.

A double zigzag would expect to see a relatively shallow and brief bounce for intermediate wave (X), so that the whole structure of a double zigzag has a strong downwards slope.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Intermediate wave (A) may be a complete zigzag. Intermediate wave (B) or (X) may be underway as a multi day bounce within primary wave 4.

This chart considers multiple possible structures for primary wave 4: as a triangle, combination, double zigzag or flat (least likely). Within a combination or triangle, there is no minimum length for intermediate wave (B) or (X).

The blue channel is slightly adjusted today. Draw the first trend line from the end of minor wave A (seen on the daily chart), then place a parallel copy up to contain all of minor wave B. The upper edge is about where upwards movement ended for this session. If price continues to move higher when markets open tomorrow, then the upper edge of this channel may provide support. A breach of this channel would add confidence to this main wave count.

Within minor wave C, no second wave correction may move beyond the start of its first wave below 2,750.50.

ALTERNATE DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

It is also possible to see intermediate wave (A) as a complete five wave structure. This wave count would expect that primary wave 4 may be unfolding as a zigzag, which would provide structural alternation with the flat correction of primary wave 2.

This wave count is judged today to have a slightly lower probability than the main wave count due to the disproportion between minor waves 2 and 4 within intermediate wave (A).

If intermediate wave (A) subdivides as a five wave structure, then intermediate wave (B) may not move beyond its start above 2,940.91.

Intermediate wave (B) may unfold as any corrective structure. It is most likely to be a zigzag, but it may also be a flat, combination, triangle or multiple zigzag. It would most likely last several days to a few weeks and may be complicated and time consuming.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

At this stage, the degree of labelling within intermediate wave (B) is left as labelled at minor degree. But it must be understood that this may be wrong and that it may need to be moved down one degree if intermediate wave (B) takes longer and turns into a complicated time consuming consolidation.

A zigzag upwards may be unfolding. A target is calculated at two wave degrees giving a reasonable probability. If this target is met quickly, then the degree of labelling within intermediate wave (B) should be moved down one degree.

When a zigzag upwards is complete, that may be the whole of intermediate wave (B); or it may only be minor wave A of a flat or triangle, or minor wave W of a combination or double zigzag.

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 target was not met; it was too optimistic.

The long lower wick on this weekly candlestick suggests a bounce this week.

DAILY CHART

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

A strong upwards day is fairly bullish. Despite no bullish signals at the low, this upwards day indicates a stronger bounce has most likely arrived. Price has closed fairly close to the high for this session and volume supports today’s upwards movement. It looks like tomorrow may see upwards movement continue. Next resistance is about 2,865 – 2,875.

If upwards movement continues to resistance and Stochastics reaches overbought, the bounce may end there. This bounce may not move in a straight line; it may be choppy and overlapping.

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.

Primary wave 4 has now arrived and is showing reasonable strength. There is continuing mid term bearish divergence this week with inverted VIX making a new low below the prior swing low of the week beginning 25th June, but price has not yet made a corresponding new low.

As primary wave 4 continues this weekly chart may offer a bullish signal at its end.

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.

Today price has moved higher and VIX has shown a normal corresponding decline in volatility. There is no new short term divergence.

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.

Last week the AD line has made a slight new low below the prior swing low of the week beginning 25th June, but price has not. This mid term divergence is bearish, but it is weak.

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.

Upwards movement today has support from a reasonable rise in market breadth. There is no new divergence.

Both mid and small caps for Friday have long lower wicks. This may indicate a small bounce to continue for a very few days.

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: 23,344.52.
DJT: 9,806.79.
S&P500: 2,532.69.
Nasdaq: 6,630.67.

ANALYSIS OF INTERMEDIATE WAVE (4)

TECHNICAL ANALYSIS

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

Intermediate wave (4) was a large symmetrical triangle. The deepest wave was the first wave. At its low there was a clear candlestick reversal pattern and bullish divergence between price and Stochastics.

RSI barely managed to reach into oversold.

The current correction for primary wave 4 may behave differently, but there should be some similarities.

It is expected that primary wave 4 may be stronger than intermediate wave (4).

VIX

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

This is a daily chart.

At the two major lows within intermediate wave (4), inverted VIX exhibited single short term bullish divergence.

At highs within intermediate wave (4), inverted VIX exhibited one single day bullish divergence with price.

AD LINE

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

This is a daily chart.

At the two major lows within intermediate wave (4), there was bullish divergence between price and the AD line. At the two major highs within intermediate wave (4), there was each one instance of single day bearish divergence.

Published @ 07:44 p.m. EST.


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