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Downwards movement remains above the invalidation point and within allowable limits.

Summary: Short-term bearish divergence between price and the AD line supports an Elliott wave count which expects a slight new low before the bounce continues. A target for tomorrow is about 2,667.

Five daily charts today look at five different structures for primary wave 4, in order of probability (roughly): triangle, combination, zigzag, double zigzag, and flat.

Primary wave 4 could be over. The alternate wave count outlines this possibility.

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.

Cycle wave V has passed equality in length with cycle wave I, and 1.618 the length of cycle wave I. The next Fibonacci ratio is used to calculate a target. When primary wave 4 is complete and the starting point for primary wave 5 is known, then the final target may also be calculated at primary degree. At that stage, there may be two targets, or the final target may widen to a small zone.

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 maroon channel is 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 tghird 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.

Primary wave 4 may find very strong support about the lower edge of the teal channel, and it looks like this is from where price bounced on the 29th of October. 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 at the weekly chart level.

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

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.

At this stage, the various possible structures for primary wave 4 will be published as separate daily charts, presented in order of probability.

DAILY CHART – TRIANGLE

S&P 500 Daily 2018
Click chart to enlarge.

If primary wave 4 unfolds as a triangle, it would have perfect alternation with the regular flat correction of primary wave 2. It would also continue to find support about the lower edge of the teal trend channel. Triangles are fairly common structures for fourth waves. For these reasons this wave count may have a slightly higher probability than the other daily charts.

If primary wave 4 is unfolding as a triangle, then within it intermediate wave (B) would most likely be incomplete. To label intermediate wave (B) over at the last swing high is possible, but it would look too shallow for a normal looking Elliott wave triangle.

Triangle sub-waves are often about 0.8 to 0.85 the length of the prior wave. This gives a target range for intermediate wave (B).

One triangle sub-wave may subdivide as a multiple; this is most often wave C, but it may also be wave B. Intermediate wave (B) may be unfolding higher as a double zigzag. When minor wave X may again be complete, then a new target for intermediate wave (B) will again be calculated.

There is no upper invalidation point for this wave count. Intermediate wave (B) may make a new high above the start of intermediate wave (A) as in a running triangle. Intermediate wave (B) should exhibit clear weakness. If price does make a new high, then for this wave count it should come with weak volume and bearish divergence between price and one or both of RSI or Stochastics.

Within the triangle, intermediate wave (C) may not move beyond the end of intermediate wave (A) below 2,603.54.

HOURLY CHART – TRIANGLE

S&P 500 Daily 2018
Click chart to enlarge.

It looks like the zigzag for minor wave X may be moving lower. Within minor wave X, minute wave b is now labelled as an expanded flat correction.

A target is calculated for minute wave c to end. This would give a reasonably normal looking proportion between minute waves a and c. If the target is wrong, it may not be low enough. Minor wave X may end at support at the lower edge of the pink channel.

DAILY CHART – COMBINATION

S&P 500 Daily 2018
Click chart to enlarge.

This wave count is judged to have only a very slightly lower probability than the triangle.

Primary wave 4 may be unfolding as a double combination. The first structure in the double may be a complete zigzag labelled intermediate wave (W). The double may be joined by a three in the opposite direction labelled intermediate wave (X). Intermediate wave (X) may be complete as a single zigzag; it is deep at 0.63 the length of intermediate wave (W), which looks reasonable.

Intermediate wave (Y) would most likely be a flat correction, which should subdivide 3-3-5. At its end, it may still find strong support about the lower edge of the teal trend channel.

At the hourly chart level, minor wave A may be an incomplete zigzag, in exactly the same way as minor wave X on the hourly chart published above.

Within the flat correction of intermediate wave (Y), minor wave B must retrace a minimum 0.9 length of minor wave A. The common range for minor wave B is from 1 to 1.38 times the length of minor wave A. Minor wave B may make a new high above the start of minor wave A at 2,815.15 as in an expanded flat.

DAILY CHART – ZIGZAG

S&P 500 Hourly 2018
Click chart to enlarge.

Primary wave 4 may be unfolding as a single zigzag, which is the most common type of corrective structure.

Within the zigzag, intermediate wave (B) may now be a complete structure, ending close to the 0.618 Fibonacci ratio of intermediate wave (A).

Intermediate wave (C) may now unfold lower as a five wave structure. Intermediate wave (C) would be very likely to end at least slightly below the end of intermediate wave (A) at 2,603.54 to avoid a truncation. It may end about support at 2,600.

This wave count would expect a fairly large overshoot of the teal trend channel. This reduces the probability of this wave count.

Within intermediate wave (C), minor wave 2 may not move beyond the start of minor wave 1 above 2,815.15.

DAILY CHART – FLAT

S&P 500 Hourly 2018
Click chart to enlarge.

Primary wave 2 was a regular flat correction. If primary wave 4 unfolds as a flat correction, then there would be no alternation in structure between the two corrections; for this reason, this wave count is judged to have a low probability.

However, alternation is a guideline, not a rule, and it is not always seen. This wave count is possible.

If primary wave 4 is a flat correction, then within it intermediate wave (B) must move higher to retrace a minimum 0.9 length of intermediate wave (A).

When intermediate wave (B) is complete, then intermediate wave (C) should move below the end of intermediate wave (A) at 2,603.54 to avoid a truncation. This would expect a reasonable overshoot of the teal trend line, which further reduces the probability of this wave count.

DAILY CHART – DOUBLE ZIGZAG

S&P 500 Hourly 2018
Click chart to enlarge.

Primary wave 4 may also be unfolding as a double zigzag.

The first zigzag in the double may be complete, labelled intermediate wave (W). The double may joined by a complete three in the opposite direction, a zigzag labelled intermediate wave (X).

The second zigzag in the double may have begun. It is labelled intermediate wave (Y). Within intermediate wave (Y), minor wave B may not move beyond the start of minor wave A above 2,815.15.

The purpose of a second zigzag in a double is to deepen the correction when the first zigzag does not move price deep enough. To achieve this purpose intermediate wave (Y) should be expected to end reasonably below the end of intermediate wave (W) at 2,603.54. This would expect a very large overshoot of the teal trend channel; for this reason, this wave count is judged to have the lowest probability.

BULLISH ALTERNATE ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2018
Click chart to enlarge.

It is possible that primary wave 4 could be over as a relatively quick zigzag, ending about support at the lower edge of the teal channel.

The proportion between primary waves 2 and 4 is reasonable. Flat corrections tend to be longer lasting structures than zigzags. There would be perfect alternation in structure and inadequate alternation in depth. This is acceptable.

This wave count has the right look at the monthly chart level.

If primary wave 5 ends at or after the end of December 2018 and the AD line fails to make new all time highs, there would then be the minimum required four months of bearish divergence between price and the AD line. If this happens, then the conditions for the end of this bull market would be in place.

A new target is calculated for primary wave 5 to end. If primary wave 5 were to be only equal in length with primary wave 1, then it would be truncated. A truncated primary wave 5 would be unlikely as then there could be no bearish divergence with the AD line. The next Fibonacci ratio in the sequence is used to calculate a target for primary wave 5.

Within primary wave 5, no second wave correction may move beyond the start of its first wave below 2,603.54.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

The subdivisions of primary wave 4 are seen in exactly the same way as most of the charts above except the degree of labelling is just moved up one degree.

Within primary wave 5, intermediate wave (1) may be over. Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 2,603.54.

Primary wave 5 may subdivide either as an impulse (more likely) or an ending diagonal (less likely). Intermediate wave (1) may be seen as either a five wave impulse or a three wave zigzag at lower time frames, and so at this stage primary wave 5 could be either an impulse or a diagonal.

Primary wave 5 at its end may be expected to exhibit reasonable weakness. At its end, it should exhibit a minimum of 4 months bearish divergence with the AD line, it may exhibit bearish divergence between price and RSI and Stochastics, and it may lack support from volume; it may not be possible to distinguish a weak fifth wave from a B wave.

TECHNICAL ANALYSIS

WEEKLY CHART

S&P 500 weekly 2018
Click chart to enlarge. Chart courtesy of et=”_blank”>StockCharts.com.

Another long lower wick last week is fairly bullish. An upwards week this week looks most likely.

DAILY CHART

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

With support about 2,700 broken today, look for next support about 2,610 – 2,600. A lack of volume today for downwards movement and a slightly long lower wick suggests downwards movement may be limited here.

BREADTH – AD LINE

WEEKLY CHART

AD Line 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.

Last week both price and the AD line have moved lower. There is no new divergence.

DAILY CHART

AD Line 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.

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.

Today the AD line has made a new short term swing low, but price has not. Market breadth is falling faster than price today. This divergence is bearish for the short term and supports the hourly Elliott wave count.

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.

Last week both price and inverted VIX have moved lower. There is no new 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.

On Monday both price and inverted VIX have moved lower. There is no new divergence.

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.

Published @ 06:43 p.m. EST.


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