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Yesterday’s analysis expected further downwards movement. The AD line indicates how much more may be expected.

Summary: Intermediate wave (2) may continue overall for a few more sessions, possibly as long as a week or two. The target remains at support at 2,912. Bullish divergence between price and the AD line suggests downwards movement may be reasonably limited.

Thereafter, the bull market may resume with a third wave up that should exhibit strength.

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

Monthly charts were last published here, with video here. There are two further alternate monthly charts here, with video here.

ELLIOTT WAVE COUNTS

The two weekly Elliott wave counts below will be labelled First and Second. They may be about of even probability. When the fifth wave currently unfolding on weekly charts may be complete, then these two wave counts will diverge on the severity of the expected following bear market. To see an illustration of this future divergence monthly charts should be viewed.

FIRST WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2019
Click chart to enlarge.

The basic Elliott wave structure consists of a five wave structure up followed by a three wave structure down (for a bull market). This wave count sees the bull market beginning in March 2009 as an incomplete five wave impulse and now within the last fifth wave, which is labelled cycle wave V. This impulse is best viewed on monthly charts. The weekly chart focusses on the end of it.

Elliott wave is fractal. This fifth wave labelled cycle wave V may end a larger fifth wave labelled Super Cycle wave (V), which may end a larger first wave labelled Grand Super Cycle wave I.

The teal Elliott channel is drawn using Elliott’s first technique about the impulse of Super Cycle wave (V). Draw the first trend line from the end of cycle wave I (off to the left of the chart, the weekly candlestick beginning 30th November 2014) to the end of cycle wave III, then place a parallel copy on the end of cycle wave II. This channel perfectly shows where cycle wave IV ended at support. The strongest portion of cycle wave III, the end of primary wave 3, overshoots the upper edge of the channel. This is a typical look for a third wave and suggests the channel is drawn correctly and the way the impulse is counted is correct.

Within Super Cycle wave (V), cycle wave III is shorter than cycle wave I. A core Elliott wave rule states that a third wave may never be the shortest. For this rule to be met in this instance, cycle wave V may not be longer in length than cycle wave III. This limit is at 3,477.39.

Within cycle wave V, primary waves 1 and 2 may now be complete. Within primary wave 3, no second wave correction may move beyond its start below 2,728.81.

Cycle wave V may subdivide either as an impulse or an ending diagonal. Impulses are much more common. Ending diagonals normally have second and fourth waves that are deep; the common depth is from 0.66 to 0.81 the prior wave. So far a correction within cycle wave V has not been deeper than 0.5, so a diagonal at this stage looks very unlikely (but remains possible).

In historic analysis, two further monthly charts have been published that do not have a limit to upwards movement and are more bullish than this wave count. Members are encouraged to consider those possibilities (links below summary) alongside the wave counts presented on a daily and weekly basis.

The daily chart below will now focus on price movement from the low of primary wave 2.

DAILY CHART

S&P 500 Daily 2019
Click chart to enlarge.

Cycle wave V must subdivide as a five wave motive structure. Within that five wave structure, only primary wave 1 may be complete.

Intermediate wave (2) may last a few days to a week or so. The first target would be about support at the 0.382 Fibonacci ratio. If price keeps falling through this first target, then the next target would be the 0.618 Fibonacci ratio, but this looks less likely.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 2,728.81.

Intermediate wave (2) would most likely subdivide as a single or double zigzag. At this stage, a double zigzag looks fairly likely to be completing.

HOURLY CHART

S&P 500 Hourly 2019
Click chart to enlarge.

Intermediate wave (2) may subdivide as any corrective Elliott wave structure except a triangle. The most common structure for second waves is a zigzag. The second most common structure is a double zigzag.

At this stage, a zigzag lower may be complete. This is labelled minor wave W. This may be the first zigzag in a double zigzag.

Double zigzags normally have relatively brief and shallow X waves. Minor wave X may end about the 0.382 Fibonacci ratio of minor wave W. Thereafter, a second zigzag labelled minor wave Y may bring intermediate wave (2) down to about the 0.382 Fibonacci ratio of intermediate wave (1). If price falls through this first target, then the next target would be the 0.618 Fibonacci ratio at 2,842.28.

Unfortunately, there is no Elliott wave rule stating a limit for X waves. X waves within double combinations are usually fairly deep and may make new price extremes beyond the start of W or Y waves. It is possible here that intermediate wave (2) may be unfolding as a double combination and that minor wave X may make a new high above the start of minor wave W at 3,026.64.

SECOND WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2019
Click chart to enlarge.

This weekly chart is almost identical to the first weekly chart, with the sole exception being the degree of labelling.

This weekly chart moves the degree of labelling for the impulse beginning in March 2009 all down one degree. This difference is best viewed on monthly charts.

The impulse is still viewed as nearing an end; a fifth wave is still seen as needing to complete higher. This wave count labels it primary wave 5.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last week volume offers some support to upwards movement, although the longer-term trend of declining volume with rising price persists.

Bearish divergence between price and On Balance Volume is too slight to be given much weight in this analysis. Sometimes this can just disappear, particularly when it is very weak.

Longer-term bearish divergence between price and RSI may develop further before a larger downwards trend begins to resolve it.

The strongest signal ADX can give is when it rises up from low levels and below both directional lines to 15 or above. Last week ADX gives a strong signal for an upwards trend, which may be in its relatively early stages.

DAILY CHART

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

Next support is about 2,912, which is the Fibonacci ratio of intermediate wave (1). It seems reasonable to expect either this pullback to end there, or a bounce to develop there.

The pullback may end when Stochastics reaches oversold and then exhibits some bullish divergence with price. There is still room for this pullback to continue lower.

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.

Bear markets from the Great Depression and onwards have been preceded by an average minimum of 4 months divergence between price and the AD line with only two exceptions in 1946 and 1976. With the AD line making new all time highs again this week, the end of this bull market and the start of a new bear market is very likely a minimum of 4 months away, which is mid November 2019.

In all bear markets in the last 90 years there is some positive correlation (0.6022) between the length of bearish divergence and the depth of the following bear market. No to little divergence is correlated with more shallow bear markets. Longer divergence is correlated with deeper bear markets.

If a bear market does develop here, it comes after no bearish divergence. It would therefore more likely be shallow.

Last week both price and the AD line make new all time highs on the weekly chart. There is no divergence.

Mid caps have now made a new all time high last week, but small caps remain below their all time high of 25th February 2019. Weakness is now predominantly in small caps. This is normal behaviour during the later stages of a bull market, and may be expected to develop further before the bull market may end. Tops are a process and that process may last months to even years.

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.

Today price has moved lower to make another new low below the prior swing low of the 18th / 22nd July, but the AD line has not. Downwards movement does not have support from a corresponding decline in market breadth. This divergence is bullish and suggests any further downwards movement here from price may be relatively limited.

Both of mid and large caps have made new short-term swing lows, but small caps have not. This pullback does not have support from market breadth. 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.

The all time high for inverted VIX (which is the same as the low for VIX) was on 30th October 2017. There is now nearly one year and eight months of bearish divergence between price and inverted VIX.

The rise in price is not coming with a normal corresponding decline in VIX; VIX remains elevated. This long-term divergence is bearish and may yet develop further as the bull market matures.

This divergence may be an early warning, a part of the process of a top developing that may take years. It may not be useful in timing a trend change.

Last week price has made a new all time high, but inverted VIX still exhibits longer-term bearish divergence. For the short term, there is no divergence between price and inverted VIX for the last swing high two weeks ago.

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.

Today inverted VIX has made a new low below the prior swing low of the 25th / 26th of June, but price has not. VIX is increasing faster than price is falling. This divergence is bearish for the short to mid term, but because it contradicts divergence with the AD line it is given only a very little weight for the short term. This slightly supports the Elliott wave count which expects some more downwards movement here.

DOW THEORY

Dow Theory confirmed a bear market in December 2018. 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 having moved higher following a Dow Theory bear market confirmation, Dow Theory would confirm a bull market if the following highs are made:

DJIA: 26,951.81 – a close above this point has been made on the 3rd of July 2019.

DJT: 11,623.58 – to date DJT has failed to confirm an ongoing bull market.

S&P500: 2,940.91 – a close above this point was made on the 29th of April 2019.

Nasdaq: 8,133.30 – a close above this point was made on the 26th of April 2019.

Published @ 10:47 p.m. EST.


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New updates to this analysis are in bold.