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A small downwards day remains well above the short-term invalidation point. Today VIX and the short-term volume profile offer support to the main Elliott wave count.

Summary: A strong bullish Hammer candlestick reversal pattern at the low indicates a trend change. The target for primary wave 5 to end is now 3,070. This may be met next year. March is the first expectation.

If price keeps rising through this first target, then a new target would be calculated and the expectation for the bull market to end may then be in October 2019.

If price makes a new low below 2,583.23, then the target for the end of primary wave 4 would be about 2,478.

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.

MAIN 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 at the monthly chart level. It may only be an impulse or ending diagonal. It is clear it is an impulse.

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

Draw the teal channel from the high of cycle wave I at 1,343.80 on the week beginning 3rd July 2011, to the high of cycle wave III at 2,079.46 on the week beginning 30th November 2014, and place a parallel copy on the low of cycle wave II at 1,074.77 on the week beginning 2nd October 2011. Draw this chart on a semi-log scale. A small overshoot, like that seen at the end of cycle wave IV, would be entirely acceptable. If price does move below the channel, then it should reverse reasonably quickly.

Primary wave 4 may be over at the last low as a complete zigzag. The teal trend channel is overshot, which is acceptable; this has happened before at the end of cycle wave IV.

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.

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

Two daily charts below are published in order of probability.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

Primary wave 4 may be a complete single zigzag.

Within the zigzag, intermediate wave (C) must subdivide as a five wave structure. It may be a complete ending contracting diagonal.

Within the ending diagonal, all sub-waves must subdivide as zigzags, minor wave 4 must overlap minor wave 1 price territory, and minor wave 4 may not move beyond the end of minor wave 2 above 2,800.18.

Minor wave 5 may have ended with an overshoot of the 1-3 trend line.

If primary wave 5 were to only reach equality in length with primary wave 1, it would be truncated. The next Fibonacci ratio in the sequence is used to calculate a target.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Within the new trend of primary wave 5, minor wave 2 may not move beyond the start of minor wave 1 below 2,583.23.

Within primary wave 5, there may now be two overlapping first and second waves to begin minor wave 1. This wave count would now expect some increase in upwards momentum, possibly in the next session.

ALTERNATE DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

The other possible structure for intermediate wave (C) would be a simple impulse. If intermediate wave (C) is unfolding as an impulse, then it may now have three first and second waves complete. This wave count would expect to see an increase in downwards momentum as the middle of a third wave unfolds.

Within minute wave iii, minuette wave (ii) may not move beyond the start of minuette wave (i) above 2,709.21.

This wave count would expect to see a very large breach of the teal trend channel on the weekly chart. This has not happened during the life of this trend channel.

The S&P commonly forms slow curving rounded tops. When it does this, it can breach channels only to continue on to make new all time highs. It is possible that Super Cycle wave I may end in this way.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last weekly candlestick is a strong bearish candlestick, but does not meet all the criteria for a Bearish Engulfing pattern. From Nison, “Japanese Candlestick Charting Techniques” page 43:

“There are three criteria for an engulfing pattern:

1. The market has to be in a clearly definable uptrend (for a bearish engulfing pattern)…

2. Two candles comprise the engulfing pattern. The second real body must engulf the prior real body (it need not engulf the shadows).

3. The second real body of the engulfing pattern should be the opposite colour of the first real body.”

This market is not currently in a clearly definable upwards trend, so the first criteria is not met.

A decline in volume last week may be due to the week being a short trading week, and so it would be best to look inside the week to determine the short-term volume profile.

However, the strongest volume for recent weeks is for the upwards week beginning 29th of October. This short-term volume profile at this time frame is bullish.

For a more bearish outlook a bearish signal from On Balance Volume would be preferred.

DAILY CHART

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

The lower edge of the teal trend channel is not shown on this chart, but it should be considered as part of this technical analysis. Expect that trend line to continue to provide support, until it does not.

Currently, this market is consolidating with resistance about 2,815 and support about 2,605 to 2,620. It is the upwards day of the 30th of October that has strongest volume during this consolidation, suggesting an upwards breakout may be more likely than downwards. This technique does not always work, but it does work more often than it fails.

With the strong Hammer candlestick reversal pattern, it still looks like a low is in place.

There is very strong resistance ahead at 2,700 and then at the 200 day moving average. For this consolidation, only a close above the upper edge of resistance at 2,800 on an upwards day with support from volume would give confidence that a new upwards trend is in place. While price remains within the consolidation zone, both Elliott wave counts will remain valid and must be considered.

Two new very short-term trend lines are drawn on On Balance Volume. A break out of this small zone would be a short-term weak signal.

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.

Both price and the AD line have moved lower last week. There is no divergence, and the AD line is not falling any faster than price here.

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.

Breadth should be read as a leading indicator.

Today both price and the AD line have moved lower. Downwards movement has support from declining market breadth. Neither have made new lows. There is no new divergence.

Nearing the end of this bull market, to the end of primary wave 5, bearish signals from the AD line may begin to accumulate.

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.

Both price and inverted VIX have moved lower last week. The fall in price comes with a normal corresponding increase in volatility, but VIX is not increasing any faster than price. There is no divergence and no bearish signal.

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.

Like the AD line, inverted VIX may now begin to accumulate instances of bearish signals or divergence as a fifth wave at three large degrees comes to an end.

Today price moved lower, but inverted VIX moved higher. Downwards movement today does not have normal increase in VIX; it comes with a decline 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 – although a new low below this point has been made, price has not closed below this point.
S&P500: 2,532.69.
Nasdaq: 6,630.67.

Published @ 10:20 p.m. EST.


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