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Overall more downwards movement was expected from the new main Elliott wave count.

Summary: It does not look like a low is in place yet. Expect price to continue falling.

A small bounce may unfold here or very soon for the very short term for minor wave 4, which may last one to a very few days. Thereafter, the target may be recalculated. At this stage, use the next strong line of support at 2,400 as a target.

New updates to this analysis are in bold.

The biggest picture, Grand Super Cycle analysis, is here.

Last monthly chart was published 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).

A best fit channel is copied over from the monthly chart. Price is about the lower edge of this channel today.

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.

The alternate wave count is discarded today. It no longer has support from classic technical analysis. Only one daily chart is published.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

Intermediate wave (C) may be a simple impulse. Within the impulse, minor waves 1, 2 and now 3 may be complete. Minor wave 3 exhibits an increase in downwards momentum; this has the right look so far.

Minor wave 4 may not move into minor wave 1 price territory above 2,631.09.

Intermediate wave (C) has passed equality in length with intermediate wave (A). However, if the next Fibonacci ratio in the sequence of 1.618 is applied to intermediate wave (C), then the target would be too low at 2,270.

When minor wave 4 may be complete, then the target may be calculated at minor degree. That cannot be done yet because minor wave 4 has not begun. Support lines will be used to indicate where downwards movement may halt.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

Intermediate wave (C) may be close to completion. Within this impulse, minor wave 4 may begin tomorrow or very soon. Minor wave 4 may last one to a few days.

Targets for minor wave 4 would be the 0.236 and 0.382 Fibonacci ratios, at this stage favouring the 0.236 Fibonacci ratio.

When minor wave 4 is complete, then the target may be recalculated.

Minor wave 2 was a very deep 0.92 zigzag, which lasted 6 sessions. Minor wave 4 may be expected to exhibit alternation, so it may be shallow. It may unfold most likely as one of a flat, combination or triangle.

Thereafter, minor wave 5 would be extremely likely to make at least a slight new low below the end of minor wave 3 to avoid a truncation.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

This wave count is identical to the main wave count up to the high labelled minor wave 2. Thereafter, it looks at a different way of labelling minor wave 3.

This wave count is more bearish than the main hourly wave count. It expects that the middle of minor wave 3 may have passed today, and minor wave 3 may continue lower for a few more days.

Minor wave 3 has passed 1.618 the length of minor wave 1. The next Fibonacci ratio in the sequence is 2.618 which yields a target at 2,318. This target may be too low.

Within the middle of this third wave, minuette wave (iv) may not move into minuette wave (i) price territory above 2,530.54.

TECHNICAL ANALYSIS

WEEKLY CHART

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

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.

The last weekly candlestick has a bearish long upper wick, but it has a smaller real body and has not moved price substantially lower.

DAILY CHART

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

This chart is fully bearish.

Downwards movement can end with strong volume, and in fact this is the case more often than not.

Look for a candlestick reversal pattern and / or clear and strong divergence between price and RSI to indicate a potential low. That is not the case today.

Next strong support below which may halt a fall in price is about 2,400.

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.

There is mid-term bullish divergence between price and the AD line. Last week price made new lows below the prior low of the week beginning the 30th of April, but the AD line has not. This indicates that downwards movement does not have support from a corresponding decline in market breadth; there is some weakness within price.

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 93 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 made new lows. There is no 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.

Last week price has made a new low below the prior swing low, but inverted VIX has not. This divergence is bullish and indicates downwards movement last week does not come with a normal corresponding increase in VIX.

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.

Both price and inverted VIX have now made new lows following bullish divergence. This divergence is considered to have failed.

SUPPLEMENT – DAILY CHART – OCTOBER 2007 TO MARCH 2009

VIX daily 2018
Click chart to enlarge. Chart courtesy of StockCharts.com

This exercise is to determine if there are any signals or a cluster of signals that appeared at minor swing lows and the final low within the most recent bear market from October 2007 to March 2009.

Lows as numbered were characterised by:

1. Declining volume as price fell on the final day, no candlestick reversal pattern, ADX was not extreme. Strong double divergence between price and RSI, but RSI had not reached oversold. A bullish signal from On Balance Volume two days after the low.

2. The day before the low a Hammer pattern (almost a Dragonfly doji but the upper wick is a little too apparent) appeared. The next day a low was found and a Bullish Engulfing pattern completed. Volume increased steadily and markedly to the low. ADX reached extreme just on the day of the low. RSI reached oversold and on the day of the low showed single day bullish divergence.

3. A strong bullish candlestick reversal pattern, and strong divergence with RSI but RSI was not extreme. On Balance Volume gave a bearish signal the day before the low.

4. A candlestick reversal pattern, a strong and steady increase in volume, downwards movement for six sessions after ADX reached very extreme. RSI reached oversold and then exhibited clear divergence with price. On Balance Volume gave a bearish signal two days before the low.

5. A strong bullish candlestick reversal pattern, a spectacular selling climax, ADX reached extreme four sessions prior to the low. RSI reached extreme but exhibited no divergence with price.

6. No candlestick reversal pattern, ADX reached extreme one session before the low, downwards movement had strong support from increasing volume; at the day of the low, there was single day divergence between price and RSI but RSI was not oversold.

7. There was no candlestick reversal pattern (the lower wick was not long enough for a Hammer pattern) at the final low in March 2009. A bullish reversal pattern appeared two sessions after the low. Price fell for the final three sessions on declining volume. ADX reached extreme five sessions prior to the low. On Balance Volume gave a bullish signal two sessions after the low, on the same day as the Bullish Engulfing pattern completed. RSI reached oversold and then exhibited divergence with price.

Additional:

Failed (and partially failed) bearish and bullish candlestick reversal patterns:

14th Feb 2008 – A Bearish Engulfing pattern was followed by only five sessions of downwards movement.

7th May 2008 – A Bearish Engulfing pattern was followed by only two sessions of downwards movement and then a high eight sessions afterwards.

8 Jul 2008 – A Bullish Engulfing pattern was followed by a new low five sessions later.

24th Jul 2008 – A Bearish Engulfing pattern was followed by only two sessions of downwards movement and a new high twelve sessions after.

1 Dec 2008 – A huge Bearish Engulfing pattern was immediately followed by 24 sessions of choppy upwards movement.

20 Feb 2009 – A strong bullish Hammer pattern was followed immediately by downwards movement.

Failed signals from RSI:

3rd Jun 2008 – Price made a slight new swing low and RSI made a slight new swing high. This bullish divergence was slight and RSI was not oversold.

18th Sep 2008 – Single day divergence where price moved lower but RSI moved higher, followed only by one more day of upwards movement.

29th Sep 2008 – Price made a strong new swing low but RSI made a slightly higher swing low, followed by only one day of upwards movement.

3 Oct 2008 – Price made a new low which was not matched by RSI. This bullish divergence was slight and disappeared the following day. It was followed by very strong downwards movement.

13 Nov 2008 – Price made a strong new swing low but RSI was substantially higher. This was followed immediately by very strong downwards movement.

17 Feb 2009 – Price made a new swing low which was not matched by RSI. This bullish divergence disappeared three sessions later and was followed by the final low 13 sessions after.

Volume profile:

Without looking at the price chart, and only looking at volume bars, it is possible to see in what direction price was moving for most of this bear market with a few exceptions. As price moved higher, upwards days exhibited stronger volume than downwards days. The reverse was true as price moved lower. A clear exception was from the 8th to the 18th of Sep 2008, and the 13th of Nov 2008.

Conclusions:

No one indicator or method may be used in isolation.

Strongly rising volume can coincide with a minor or major low. This is also observed by Lowry’s.

Divergence between price and RSI is more reliable when RSI is oversold, or when the divergence is strong. However, even strong divergence can simply disappear.

A cluster of bearish indications at one time increases the probability of a low.

DOW THEORY

Dow Theory confirms a bear market. This does not necessarily mean a bear market at Grand Super Cycle degree though; Dow Theory makes no comment on Elliott wave counts. It may equally as likely mean that Primary wave 4 could be deeper and stronger than originally anticipated.

DJIA: 23,344.52 – a close on the 19th of December at 23,284.97 confirms a bear market.

DJT: 9,806.79 – price has closed below this point on the 13th of December.

S&P500: 2,532.69 – a close on the 19th of December at 2,506.96 provides support to a bear market conclusion.

Nasdaq: 6,630.67 – a close on the 19th of December at 6,618.86 provides support to a bear market conclusion.

Published @ 10:52 p.m. EST.


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