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Upwards movement continues as expected.

Analysis of volume and breadth within this session indicates some strength. What happens tomorrow regarding volume and breadth will be important.

Summary: There is no evidence to suggest the larger bull market is over. The current pullback is very deep and not likely to be finished yet. At its conclusion, it may present a good buying opportunity.

For the short term, a bounce or sideways consolidation may continue for wave B. Targets for it to end are either 3,188 or 3,257. Thereafter, wave C may end below 2,812.68.

A new low below 2,728.81 would indicate a deeper correction that may end at the lower edge of the teal multi-year trend channel.

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. This wave count considers a diagonal. The alternate considers an impulse.

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.

The middle of the third wave overshoots the upper edge of the Elliott channel drawn about this impulse. All remaining movement is contained within the channel. This has a typical look.

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 monthly charts which may be seen in last published monthly analysis.

At this stage, cycle wave V may end within this year or possibly into next year.

The daily chart below will focus on movement from the end of intermediate wave (B) within primary wave 3.

Ending diagonals require all sub-waves to subdivide as zigzags. Primary wave 4 of a diagonal must overlap primary wave 2. This rule is now met. Primary wave 4 may not move below the end of primary wave 2 below 2,728.81.

This ending diagonal would be expanding. Primary wave 3 is longer than primary wave 1, and primary wave 4 so far is longer than primary wave 2. Primary wave 5 would need to be longer than primary wave 3 for all rules regarding wave lengths of expanding diagonals to be met.

Fourth and second waves of diagonals most commonly end somewhere between 0.66 to 0.81 of the prior wave. This gives a target zone for primary wave 4 from 2,954.81 to 2,855.10. However, this diagonal is expanding and primary wave 5 needs to be longer in length than primary wave 3, which was 664.71 points for this rule to be met. This rule needs to be met prior to the upper limit for cycle wave V at 3,477.39, so primary wave 5 would need to begin below 2,812.68.

DAILY CHART

S&P 500 Daily 2020
Click chart to enlarge.

All sub-waves of an ending diagonal must subdivide as zigzags. This is the only Elliott wave structure where a third wave sub-divides as anything other than an impulse.

Primary wave 4 must subdivide as a zigzag. Within the zigzag, a sharp bounce or a time consuming sideways consolidation for intermediate wave (B) may be underway.

Diagonals normally adhere very well to their trend lines, which may be tested within the sub-waves. The upper 1-3 trend line is tested at the end of minor wave 3 within intermediate wave (C) within primary wave 3.

Primary wave 4 may not move beyond the end of primary wave 2 below 2,728.81.

HOURLY CHART

S&P 500 Hourly 2020
Click chart to enlarge.

Primary wave 4 within a diagonal must subdivide as a zigzag. Within the zigzag, intermediate wave (B) would very likely show on the daily and weekly chart for primary wave 4 to have the right look. Intermediate wave (B) now shows up on the daily chart.

Intermediate wave (B) may not move beyond the start of intermediate wave (A) above 3,393.52.

This first hourly chart looks at the possibility that intermediate wave (B) may be unfolding as a zigzag. This is the most common Elliott wave corrective structure, so this wave count has a higher probability than the alternate hourly chart below.

Within the zigzag, minor wave C may be an incomplete five wave impulse. Within minor wave C, minute wave iv may not move into minute wave i price territory below 3,041.76.

Draw a small channel about intermediate wave (B) using Elliott’s technique for a correction: draw the first trend line from the start of minor wave A to the end of minor wave B, then place a parallel copy on the end of minor wave A. Assume intermediate wave (B) is incomplete and may continue higher while price remains within the channel. If the channel is breached by downwards movement, then intermediate wave (B) may be over and intermediate wave (C) downwards may then have begun.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2020
Click chart to enlarge.

It is also possible to move the degree of labelling within intermediate wave (B) down one degree. Intermediate wave (B) may be unfolding sideways as a flat, combination or triangle. All of these structures begin with a three wave structure, or minor wave A or W, that may be an incomplete zigzag.

When minor wave A or W may be complete, then minor wave B or X may be a deep pullback.

The small channel drawn about minor wave A or W is the same on both hourly charts. Use the channel in the same way.

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.

An ending expanding diagonal is still viewed as nearing an end. 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 a diagonal, in the same way that cycle wave V is seen for the first weekly chart.

ALTERNATE WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2020
Click chart to enlarge.

It is also possible that cycle wave V may still be unfolding as an impulse. Within the impulse, only primary wave 1 may be over at the last high.

Primary wave 1 is seen as an impulse. Within primary wave 1, there is poor proportion between the corrections of intermediate waves (2) and (4) and minor waves 2 and 4. This gives the wave count a forced look, but it is valid.

Primary wave 2 may be unfolding as a zigzag. It may find strong support about the lower edge of the multi-year teal trend channel.

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

If the main wave count is invalidated with a new low below 2,728.81, then this alternate would then be used.

The limit is removed from this alternate. If only primary wave 1 is over at the last all time high, then more room would be required for the structure of cycle wave V to complete than the limit would allow. This alternate may fit with one of the alternate monthly charts.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Risk of a pullback identified has been followed by a 15.8% drop in price (high to low) so far. This dramatic drop in price has precedent within the larger bull market. It does not necessarily mean the secular bull market must be over.

At the weekly chart level, conditions are not yet oversold; this pullback may be expected to continue further.

For the short term, the volume spike last week may be a selling climax. In conjunction with a bullish long lower wick on this weekly candlestick, a bounce may be expected about here.

DAILY CHART

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

There are now three 90% downwards days in this strong downwards movement.

Following a 90% downwards day, either a 90% upwards day or two back to back 80% upwards days within 3 sessions would be required to indicate a 180°reversal in sentiment and indicate a sustainable low may be in place.

Now Wednesday meets the requirement of an 80% upwards day. For a sustainable low to be indicated, tomorrow must meet the requirement of either an 80% or a 90% upwards day. If it does not, then some confidence that a B wave may be continuing could be had.

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 with last all time highs from price, 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 June 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.

Last week price and the AD line have both moved lower. Price has made new lows below the prior swing low of the week beginning 2nd December 2019, but the AD line has not. Price is falling faster than market breadth; breadth does not support this fall in price. This divergence is bullish and fairly strong, and it supports the new 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.

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.

Both price and the AD line have moved higher today. Price has not made a new high above the prior session, but the AD line has. This is an instance of single-day bullish divergence. This may support the Elliott wave count which expects more upwards movement tomorrow.

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.

Last week both price and inverted VIX have moved lower. Inverted VIX has made new lows below prior lows of weeks beginning 17th / 24th December, but price has not. Inverted VIX is falling faster than price. This divergence is bearish. Because this disagrees with the AD line, it shall not be given weight in this analysis.

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.

Price and inverted VIX have both moved higher. Inverted VIX has made a new high above the prior session, but price has not. This is a single instance of bullish divergence. Because this agrees with the AD line today, it may be given a little weight.

DOW THEORY

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.

Dow Theory would confirm a bear market if the following lows are made on a closing basis:

DJIA: 21,712.53

DJT: 8,636.79

S&P500: 2,346.58

Nasdaq: 7,292.22

Published @ 06:34 p.m. EST.


Careful risk management protects your trading account(s).

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.