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More downwards movement to a target at 2,698 was expected. The low for Monday at 2,691.43 is 6.57 points below the target.

Summary: It looks most likely that a multi week bounce may begin here. It may end above 2,890, and may be as high as 2,916. This view has support from strong bullish divergence between price and RSI, VIX and Stochastics, and a long lower wick on today’s candlestick.

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. 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. 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. 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.

Primary wave 4 now has an overshoot on the lower edge of the channel. This is acceptable; fourth waves are not always neatly contained 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 the 0.236 Fibonacci ratio at 2,717 and the 0.382 Fibonacci ratio at 2,578.

The 0.382 Fibonacci ratio would expect an overshoot of the teal channel. This 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 double zigzag downwards. This is labelled as intermediate wave (A).

If intermediate wave (A) unfolds as a double zigzag, then primary wave 4 may be unfolding as either a flat or a triangle. A double zigzag may not be labelled as intermediate wave (W) because the maximum number of corrective structures is three, and to label multiples within multiples increases the maximum beyond three and violates an Elliott wave rule.

If primary wave 4 is unfolding as a flat correction, then intermediate wave (A) may be a double zigzag. Primary wave B may then bounce higher to retrace a minimum 0.9 length of primary wave A, and may make a new high above the start of primary wave A as in an expanded flat correction.

If primary wave 4 is unfolding as a triangle, then intermediate wave (A) may be a double zigzag. Primary wave B would have no minimum required length, and would most commonly be about 0.8 to 0.85 the length of primary wave A.

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 a complete double zigzag.

Intermediate wave (B) may have begun as a multi week bounce within the larger consolidation of primary wave 4.

If intermediate wave (A) subdivides as a “three”, then intermediate wave (B) may be expected to be a strong bounce that retraces a large portion of intermediate wave (A). Expectations for intermediate wave (B) to end are given on the chart for both possibilities of a triangle or a flat correction.

Intermediate wave (B) may be a relatively quick sharp zigzag or a time consuming sideways combination, flat or triangle. Intermediate wave (B) may be any one of more than 23 possible corrective structures. B waves exhibit the greatest variety in Elliott wave structure and price behaviour, and they are very difficult to analyse. It is impossible for me to tell you which structure intermediate wave (B) will unfold as.

A wave at intermediate degree should begin with a five up on the hourly chart. Upwards movement at this time is labelled minute wave i, which is incomplete. When minute wave i is complete, then minute wave ii may not move beyond its start below 2,691.43.

ALTERNATE DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

It is also possible to see intermediate wave (A) as an incomplete five wave structure.

With both lasting seven days, there is now excellent proportion between minor waves 2 and 4 within this wave count. Additionally, there is alternation between the deep 0.96 combination of minor wave 2 and the shallow 0.29 triangle of minor wave 4.

Intermediate wave (A) ends below the lower edge of the maroon channel, which is copied over from the weekly chart. Intermediate wave (B) may bounce up to test resistance there.

Intermediate wave (B) may not move beyond the start of intermediate wave (A) above 2,940.91.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Intermediate wave (A) may be seen now as a complete five wave impulse. There is an excellent Fibonacci ratio between minor waves 3 and 5.

Minor wave 4 is relabelled today as a possible triangle for this wave count. It does not have a very good look, but it does meet all Elliott wave rules.

Intermediate wave (B) may be a shallow sideways consolidation lasting a very few weeks, which may find resistance about the lower edge of the maroon channel. This would see intermediate wave (B) end close to the 0.382 Fibonacci ratio of intermediate wave (A).

TECHNICAL ANALYSIS

WEEKLY CHART

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

The bearish long upper wick on the last weekly candlestick is contradicted by a bullish signal from On Balance Volume. Downwards movement here may be limited as On Balance Volume may find support with one more downwards week.

DAILY CHART

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

A long lower wick and strong bullish divergence between price and particularly RSI but also Stochastics indicate downwards movement may end here for the mid term. A stronger and more sustained bounce may begin here.

The bounce may be as high as resistance about 2,865 – 2,875.

However, it is slightly concerning that volume supported downwards movement within this session. The strongest hour on the hourly chart was the last hour, which was an upwards hour, but within it the balance of volume was down.

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.

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.

Upwards movement within last week has support from a slight increase in the AD line. There is no new short term divergence.

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.

The AD line has made a new low below the prior low of the 15th of October, but price has not. This divergence is short term and bearish; it is reasonable, but it is not very strong. This supports the first two Elliott wave counts.

Downwards movement today has support from a decline in the AD line. There is no new short term divergence, either bullish or bearish.

Both of mid and small caps made new lows today. All have long lower candlestick wicks. Downwards movement has some support from market breadth.

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 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.

Last week completed an inside week with the balance of volume upwards and a green weekly candlestick. A small upwards movement from inverted VIX offers 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.

Price has made a new swing low today below the prior low of the 11th of October, but inverted VIX has not. This new low does not have a corresponding normal increase in VIX. This divergence is bullish.

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 @ 08:29 p.m. EST.


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