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The target for the next interruption to the trend was at 3,415. Upwards movement has fallen 21.48 points short of this target.

Summary: The trend is up. Consolidations and pullbacks may last a few weeks but should be viewed in the bigger context of an ongoing bull market. At support they may provide opportunities to join the trend.

Intermediate wave (4) may have arrived. A target for support would be about 3,259. If this expectation is wrong, it may be too low; intermediate wave (4) may be very shallow.

If price makes a new all time high tomorrow, then a new target for upwards movement to be interrupted would be at 3,538 (this would necessitate one of the alternate monthly wave counts being used).

Two more large pullbacks or consolidations (fourth waves) during the next 1-2 years are expected: for intermediate (4) (which may have just arrived) and then primary 4.

If price makes a new high by any amount at any time frame above 3,477.39 (even a fraction of a point on a tick chart), then this analysis switches to one of the very bullish alternate monthly charts. The next cycle degree target would then be either 4,092 or 4,213.

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

Last monthly charts analysis is here with video here.

ELLIOTT WAVE COUNTS

FIRST WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2020
Click chart to enlarge.

Cycle wave V may subdivide either as an impulse or an ending diagonal. Impulses are much more common, and it is clear at this stage that cycle wave V is an impulse and not a diagonal.

At this stage, cycle wave V may take another one to two or so years to complete.

A channel is drawn about the impulse of Super Cycle wave (V) using Elliott’s first technique. Draw this channel first from the high of 2,079.46 on the 5th of December 2014 to the high of 2,940.91 on the 21st of September 2018, then place a parallel copy on the low at 1,810.10 on the 11th of February 2016. Cycle wave IV found support about the lower edge.

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 new high by any amount at any time frame above this point would invalidate this main wave count in favour of one of the two alternate wave counts in the monthly chart analysis which are much more bullish.

The daily chart below will focus on movement from the end of intermediate wave (1).

Within cycle wave V, primary waves 1 and 2 may be complete. Within primary wave 3, intermediate waves (1) and (2) may be complete. Intermediate wave (3) may be over at any stage now. Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,027.98.

Within cycle wave V, the corrections of primary wave 2, intermediate wave (2) and minor wave 2 all show up clearly on the weekly chart. For cycle wave V to have the right look, the corresponding corrections of minor wave 4, intermediate wave (4) and primary wave 4 should also show up on the weekly chart. Minor wave 4 now shows up on the weekly chart, and so now two more large multi-week corrections are needed as cycle wave V continues higher, and for this wave count the whole structure must complete at or before 3,477.39.

DAILY CHART

S&P 500 Daily 2020
Click chart to enlarge.

Minor waves 2 and 4 for this wave count both subdivide as zigzags; there is no alternation in structure. Minor wave 2 is deep at 0.83 the length of minor wave 1, and minor wave 4 is shallow at 0.26 the length of minor wave 3; there is alternation in depth. Minor wave 2 lasted 10 sessions and minor wave 4 lasted 7 sessions; the proportion is acceptable and gives the wave count the right look.

There is no adequate Fibonacci ratio between minor waves 1 and 3. If minor wave 5 is now complete, then it would be 5.21 points short of 0.382 the length of minor wave 3.

Intermediate wave (2) subdivides as a zigzag that lasted 6 sessions and was deep at 0.69 of intermediate wave (1). Intermediate wave (4) may subdivide as any corrective structure, most likely one of either a flat, combination or triangle. It may also unfold as a zigzag.

Intermediate wave (4) should show up on the weekly chart, so it should last at least one week and possibly as long as three or four weeks if it is a more time consuming structure such as a triangle or combination.

Intermediate wave (4) may end within the price territory of one lesser degree; minor wave 4 has its price territory from 3,337.77 to 3,214.68.

Use Elliott’s first technique to draw a channel about primary wave 3. Draw the first trend line from the ends of intermediate wave (1) to intermediate wave (3) then place a parallel copy on the end of intermediate wave (2). Intermediate wave (4) may find support about the lower edge of this channel.

HOURLY CHART

S&P 500 Hourly 2020
Click chart to enlarge.

If intermediate wave (4) has arrived, then it should begin with a five down on the hourly chart. That may be incomplete and is labelled minute wave a.

Within the first five down, no second wave correction may move beyond the start above 3,393.52.

When a five down may be complete, then a smaller three up bounce should unfold. This may be labelled minute wave b. Minute wave b may not move beyond the start of minute wave a above 3,393.52.

ALTERNATE DAILY CHART

S&P 500 Daily 2020
Click chart to enlarge.

Alternatively, it is possible that intermediate wave (3) may still be incomplete.

This wave count moves the degree of labelling within minor wave 5 down one degree. Minor wave 5 may extend and continue higher. Within minor wave 5, minute wave i may be complete at the last high and minute wave ii may not move beyond the start of minute wave i below 3,214.68.

The target calculated for this alternate wave count only works with one of the more bullish monthly charts. The structure of cycle wave V would be the same.

SECOND WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2020
Click chart to enlarge.

This second wave count sees all subdivisions from the end of the March 2009 low in almost the same way, with the sole difference being the degree of labelling.

If the degree of labelling for the entirety of this bull market is all moved down one degree, then only a first wave at cycle degree may be nearing an end.

When cycle wave I is complete, then cycle wave II should meet the technical definition of a bear market as it should retrace more than 20% of cycle wave I, but it may end about either the 0.382 or 0.618 Fibonacci Ratios of cycle wave I. Cycle wave II may end close to the low of primary wave II within cycle wave I, which is at 1,810.10. It is also possible that cycle wave II could be fairly shallow and only barely meet the definition of a bear market.

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. Primary wave 5 may still need another year to two or so to complete, depending upon how time consuming the corrections within it may be.

Primary wave 5 may be subdividing as an impulse, in the same way that cycle wave V is seen for the first weekly chart.

TECHNICAL ANALYSIS

WEEKLY CHART

Weekly 2020
Click chart to enlarge. Chart courtesy of StockCharts.com.

It is very clear that the S&P is in an upwards trend and the bull market is continuing. Price does not move in straight lines; there will be pullbacks and consolidations along the way.

This chart is overall bullish. There are no signs of weakness in upwards movement.

A pullback or consolidation is complete and found strong support below about 3,020 to 3,025.

This bull market beginning in March 2009 has been characterised now for many years by rising price on declining volume. Despite all technical textbooks stating this is unsustainable, it has now been sustained for over a decade. This is concerning for an eventual bearish move as it may mean that support below is thin and weak, but for now the bull market continues. A decline in volume in current market conditions shall not be read necessarily as bearish.

Last week exhibits some strength in upwards movement with reasonable range, although a small decline in volume again is not of a concern here.

Further pullbacks or consolidations will unfold. Do not expect price to move in a straight line. Pullbacks to support in a bull market may be used as opportunities to join an established trend.

Continued bearish divergence for the short term between price and RSI suggests the risk of a pullback remains high.

DAILY CHART

Daily 2020
Click chart to enlarge. Chart courtesy of StockCharts.com.

The larger trend, particularly at the monthly time frame, remains up. Expect pullbacks and consolidations to be more short term in nature although they can last a few weeks.

Look for initial support for any pullbacks about 3,350.

There is now a small cluster of candlestick reversal patterns in two Dragonfly doji and now a Hanging Man. Bearish divergence between price and RSI remains and supports the Elliott wave count.

BREADTH – AD LINE

WEEKLY CHART

AD Line weekly 2020
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 last 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 May 2020.

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.

Bearish short-term divergence noted last week has not been followed by any downwards movement. It is considered to have failed.

This week both price and the AD line have made new all time highs. Upwards movement has support from rising market breadth. This is bullish and supports the Elliott wave count.

Large caps all time high: 3,393.52 on 19th February 2020.

Mid caps all time high: 2,109.43 on 20th February 2020.

Small caps all time high: 1,100.58 on 27th August 2018.

For the very short term, some strength in mid caps today may support the alternate daily Elliott wave count.

DAILY CHART

AD Line daily 2020
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, but the AD line has declined *edit: increased. This divergence is bullish for the short term and supports the alternate daily Elliott wave count (this is the main reason why the alternate is provided today).

VOLATILITY – INVERTED VIX CHART

WEEKLY CHART

VIX weekly 2020
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 was on 30th October 2017. There is now over two years 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 is clearly not useful in timing a trend change from bull to a fully fledged bear market.

Price has moved higher and made a new high, but inverted VIX has not. There is again short, mid and long-term bearish divergence. This supports the main Elliott wave count.

DAILY CHART

VIX daily 2020
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.

Short-term bearish divergence has now been followed by some downwards movement.

Today both price and inverted VIX have moved lower. There is no new short-term divergence. Inverted VIX does not agree today with 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 @ 07:44 p.m. EST.


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Follow my two Golden Rules:

1. Always trade with stops.

2. Risk only 1-5% of equity on any one trade.


New updates to this analysis are in bold.