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At the end of this week, the AD line and VIX indicate the most likely Elliott wave count.

Summary: The main wave count will expect intermediate wave (2) may now be over and a third wave up at two degrees may begin on Monday. The target is at 3,213. Confidence in this view may be had if any one or more of the following occurs next week:

– a new all time high in price with support from volume

– a new all time high in the AD line

– a 90% up day (or close to it)

– a strong bullish candlestick reversal pattern on the daily chart with support from volume

Alternatively, intermediate wave (2) may continue lower for another week or two as a double zigzag towards the 0.618 Fibonacci ratio at 2,842.28. Confidence in this view may be had if price makes a new low below 2,914.11 by any amount at any time frame.

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.

MAIN 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.

Primary wave 3 may only subdivide as an impulse. Within primary wave 3, intermediate waves (1) and (2) may now be complete. Intermediate wave (2) may have ended close to the 0.382 Fibonacci ratio of intermediate wave (1).

A target is calculated for intermediate wave (3) that fits with the higher limit for cycle wave V. Within intermediate wave (3), no second wave correction may move beyond the start of its first wave below 2,914.11. This invalidation point is absolute.

This wave count expects a trend change at Friday’s low; this may be premature. Classic technical analysis will be used next week for confidence in this wave count as outlined in the summary above.

MAIN HOURLY CHART

S&P 500 Hourly 2019
Click chart to enlarge.

Intermediate wave (2) may now be a complete single zigzag. There is no Fibonacci ratio between minor wave A and C.

Within intermediate wave (3), no second wave correction may move beyond the start of its first wave below 2,914.11.

ALTERNATE DAILY CHART

S&P 500 Daily 2019
Click chart to enlarge.

This wave count is identical to the main wave count up to the high labelled intermediate wave (1). Thereafter, the degree of labelling within intermediate wave (2) is moved down one degree. It is possible that intermediate wave (2) may continue lower for another week or two as a deeper double zigzag. The 0.618 Fibonacci ratio is a reasonable target.

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

ALTERNATE HOURLY CHART

S&P 500 Hourly 2019
Click chart to enlarge.

Within a double zigzag, X waves are normally brief and shallow. It is possible that minor wave X may be over at Friday’s high, but it is also possible that it may continue higher before it is complete.

Unfortunately, there is no Elliott wave rule stating a limit for X waves within double zigzags or double combinations. Within combinations they may make new price extremes beyond the start of waves W or Y. There can be no upper invalidation point for this wave count for this reason.

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.

This week a very strong Bearish Engulfing candlestick pattern supports the alternate Elliott wave count. It has good support from volume.

DAILY CHART

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

Support about 2,912 has been reached and from there price bounced up on Friday. The long lower wick on Friday’s candlestick is bullish for the short term.

There is still room for price to fall further before conditions reach oversold.

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.

This week price has made a new low below the short term low two weeks prior, but the AD line has failed to make a corresponding new low by a small margin. This divergence is bullish for the short term and slightly supports the main Elliott wave count.

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.

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.

Within this pullback, mid and large caps made new short-term swing lows first then small caps followed on Friday.

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 nine 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.

This week price and inverted VIX have both moved lower. Neither have made a new swing low below the prior swing low of the weeks beginning 28th May / 3rd June.

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.

Bearish mid-term divergence noted in last analysis between current lows and the prior swing low of 25th / 26th June remains, but after Friday’s downward movement it is very slight. It is considered too small to have any predictive value.

On Friday price moved lower, but inverted VIX has moved higher. Downwards movement on Friday did not come with a normal corresponding increase in VIX. This divergence is bullish for the short term and may offer a very small amount of support to the main Elliott wave count because it confirms bullish divergence between price and the AD line.

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 @ 12:24 a.m. EST on August 3, 2019.


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New updates to this analysis are in bold.