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Upwards movement continues towards the target as expected. This bullish movement has support from rising market breadth and declining volatility.

Summary: The target is at 2,856. If the target is wrong, it may be too high; there is very strong resistance just above at 2,800 to 2,815.

The upwards trend should be assumed to continue as long as price remains within the blue Elliott channel.

The bigger picture still expects that a low may now be in place.

The final target is at 3,045 with a limit at 3,477.39.

This upwards trend shows increasing internal strength: It began with two 90% upwards days close to the low and now the AD line and On Balance Volume have both made new all time highs.

New updates to this analysis are in bold.

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

Monthly charts were last updated here, including a very bullish alternate wave count.

ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2018
Click chart to enlarge.

This weekly chart shows all of cycle waves III, IV and V so far.

Cycle wave II fits as a time consuming double combination: flat – X – zigzag. Combinations tend to be more time consuming corrective structures than zigzags. Cycle wave IV has completed as a multiple zigzag that should be expected to be more brief than cycle wave II.

Cycle wave IV may have ended at the lower edge of the Elliott channel.

Within cycle wave V, no second wave correction may move beyond the start of its first wave below 2,346.58.

Although both cycle waves II and IV are labelled W-X-Y, they are different corrective structures. There are two broad groups of Elliott wave corrective structures: the zigzag family, which are sharp corrections, and all the rest, which are sideways corrections. Multiple zigzags belong to the zigzag family and combinations belong to the sideways family. There is perfect alternation between the possible double zigzag of cycle wave IV and the combination of cycle wave II.

Although there is gross disproportion between the duration of cycle waves II and IV, the size of cycle wave IV in terms of price makes these two corrections look like they should be labelled at the same degree. Proportion is a function of either or both of price and time.

Draw the Elliott channel about Super Cycle wave (V) with the first trend line from the end of cycle wave I (at 2,079.46 on the week beginning 30th November 2014) to the high of cycle wave III, then place a parallel copy on the low of cycle wave II. Cycle wave V may find resistance about the upper edge.

It is possible that cycle wave V may end in October 2019. If it does not end there, or if the AD line makes new all time highs during or after June 2019, then the expectation for cycle wave V to end would be pushed out to March 2020 as the next possibility.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

The daily chart will focus on the structure of cycle waves IV and V.

Cycle wave IV now looks like a complete double zigzag. This provides perfect alternation with the combination of cycle wave II. Double zigzags are fairly common corrective structures.

Within Super Cycle wave (V), cycle wave III may not be the shortest actionary wave. Because cycle wave III is shorter than cycle wave I, this limits cycle wave V to no longer than equality in length with cycle wave III at 3,477.39. A target is calculated for cycle wave V to end prior to this point.

Cycle wave V must subdivide as a five wave motive structure, either an impulse or an ending diagonal. An impulse is much more common and that will be how it is labelled. A diagonal would be considered if overlapping suggests it.

Primary wave 1 is labelled as incomplete.

Primary wave 2 may not move beyond the start of primary wave 1 below 2,346.58.

HOURLY CHART

S&P 500 Hourly 2018
Click chart to enlarge.

If intermediate wave (5) is under way, then within it minor waves 1 through to 3 may be complete.

With this labelling of intermediate wave (5), there is a very close Fibonacci ratio between minor waves 3 and 1. Minor wave 3 shows stronger momentum than minor wave 1.

Minor wave 2 fits as a zigzag. Minor wave 4 fits as a complete double combination: flat – X – zigzag.

The channel is drawn using Elliott’s second technique: the first trend line from the ends of minor waves 2 to 4, then a parallel copy on the end of minor wave 3. The trend channel may show where minor wave 5 ends; it may find resistance about the upper edge of the channel, or it may end about mid way within the channel.

As minor wave 5 continues the lower edge of the channel may provide support.

A breach now of this channel by downwards (not sideways) movement would provide an indication that primary wave 1 may be over and primary wave 2 may be underway.

Minor wave 5 may be extending, and within it the middle third wave of minute wave iii may be complete and extended. A new short-term target is calculated for minute wave v to end.

Within minor wave 5, minute wave iv may not move into minute wave i price territory below 2,748.55.

If price gets to the first target and keeps on rising, then the second target may be used.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last week completes a very bullish week. The lower wick and shaven head of this green candlestick is bullish. A little support from volume is bullish.

ADX has not yet caught up with the upwards trend. RSI indicates there is room for it to continue for a reasonable distance.

DAILY CHART

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

Over a fairly long period of time this ageing bull market has been characterised by upwards movement on light and declining volume and low ATR. For the short to mid term, little concern may be had if price now rises again on declining volume. Current market conditions have allowed for this during a sustained rise in price.

It is also normal for this market to have lower ATR during bullish phases, and strongly increasing ATR during bearish phases. Currently, declining ATR is normal and not of a concern.

Considering the larger picture from the Elliott wave count, some weakness approaching the end of Grand Super Cycle wave I is to be expected.

From Kirkpatrick and Dhalquist, “Technical Analysis” page 152:

“A 90% downside day occurs when on a particular day, the percentage of downside volume exceeds the total of upside and downside volume by 90% and the percentage of downside points exceeds the total of gained points and lost points by 90%. A 90% upside day occurs when both the upside volume and points gained are 90% of their respective totals”…

and “A major reversal is singled when an NPDD is followed by a 90% upside day or two 80% upside days back-to-back”.

The current situation saw two 80% downside days on December 20th and 21st, then a near 90% downside day with 88.97% downside on December 24th. This very heavy selling pressure on three sessions together may be sufficient to exhibit the pressure observed in a 90% downside day.

This has now been followed by two 90% upside days: on December 26th and again on 4th January.

The current situation looks very much like a major low has been found.

This chart is overall very bullish. Only the moving averages are not yet full bore bullish.

Price does not move in straight lines though. There will be small and large pullbacks within the trend. Use them as opportunities.

For the short term, price is now very close to a strong area of resistance at 2,800 to 2,815 and the risk of a pullback about this area is reasonable, so caution is warranted.

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.

Every single bear market from the Great Depression and onwards has been preceded by a minimum of 4-6 months divergence between price and the AD line. With the AD line making a new all time high last week, the end of this bull market and the start of a new bear market must be a minimum of 4 months away, which is mid June 2019 at this time.

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.

Breadth should be read as a leading indicator.

There is now a cluster of bullish signals from the AD line. This supports the Elliott wave count.

The AD line has again made another new high above the high of the 3rd of December, but price has not. This divergence is bullish.

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.

Inverted VIX has made yet another new high above the prior swing high of the weeks beginning 26th of November and 3rd of December 2018, but price has not. This divergence is bullish for the mid term.

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.

Inverted VIX has made another new high above the prior high of the 3rd of December, but price has not. This divergence is bullish. Inverted VIX moved very strongly higher today while price moved a relatively small amount. This is also bullish.

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. On the 25th of August 2015 Dow Theory also confirmed a bear market. The Elliott wave count sees that as part of cycle wave II. After Dow Theory confirmation of a bear market in August 2015, price went on to make new all time highs and the bull market continued.

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.

With all the indices moving now higher, Dow Theory would confirm a bull market if the following highs are made:

DJIA: 26,951.81

DJT: 11,623.58

S&P500: 2,940.91

Nasdaq: 8,133.30.

Published @ 07:57 p.m. EST.


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