S&P 500: Elliott Wave and Technical Analysis | Charts – May 12, 2020
Summary: A downwards or sideways movement may continue here, which may last another one to few weeks and may find support about 2,789.
Thereafter, upwards movement to a final target about 3,069 to 3,261 may begin. When the pullback may be complete, then this final upwards target will be recalculated.
This bounce that began on 23rd of March is still expected to be a counter trend bounce within an ongoing bear market. When the bounce is complete, then the bear market is expected to resume with strength.
The biggest picture, Grand Super Cycle analysis, is here.
Last monthly charts are here. Video is here. Members are encouraged to view all three monthly charts. The third is much more bearish than this main wave count and remains a valid possibility.
ELLIOTT WAVE COUNTS
WEEKLY CHART
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The channel is now breached by a full weekly candlestick below and not touching the lower edge. Further confidence in this wave count may be had.
Price has reached below the 0.382 Fibonacci ratio of cycle wave I at 2,352 on the last downwards movement. The structure of cycle wave II may need further to go to complete. The next Fibonacci ratio at 0.618 is now a preferred target for cycle wave II to end.
Cycle wave II would most likely subdivide as a zigzag; thus far that looks like what is unfolding. When primary waves A and B may both be complete, then the target may be calculated using a Fibonacci ratio between primary waves A and C. At that stage, the final target may change or widen to a zone.
Cycle wave II may not move beyond the start of cycle wave I below 666.79.
DAILY CHART
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Draw the wide maroon trend channel carefully: draw the first trend line from the end of primary wave 1 at 2,093.55 (December 26, 2014), to the end of primary wave 3 at 2,940.91 (September 21, 2018), then place a parallel copy on the end of primary wave 2 at 1,810.10 (February 11, 2016). The channel is fully breached indicating a trend change from the multi-year bull trend to a new bear trend. Resistance at the lower edge has been overcome; price has closed above this trend line. The lower edge of this trend channel may provide support now as primary wave B continues.
Cycle wave II may subdivide as any Elliott wave corrective structure except a triangle. It would most likely be a zigzag. Primary wave A may be a complete five wave impulse downwards. Primary wave B may not move beyond the start of primary wave A above 3,393.52.
Draw a 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. Minor wave C may find support at the lower edge of the channel.
When intermediate wave (B) may be complete, then a new and wider channel may be drawn to contain all of primary wave B.
ALTERNATE HOURLY CHART
The bullish alternate hourly Elliott wave count is discarded today based upon a very low probability after a very strong downwards movement at the end of this session.
HOURLY CHART – FLAT
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This wave count looks at the possibility that the first wave down, which is here labelled minor wave A, may have subdivided as a zigzag.
If a zigzag downwards is complete, then this may be minor wave A within a flat correction for intermediate wave (B).
Minor wave B may be complete as a single zigzag. Minor wave B reached and passed the minimum required length of 0.9 the length of minor wave A. A regular flat is indicated when wave B within flat corrections is between 0.9 to 1.04 the length of wave A. Regular flats often fit within parallel channels, and the most common length for wave C is equality with wave A. A target is now calculated for minor wave C to complete a regular flat correction for intermediate wave (B).
Minor wave C would be very likely to make at least a slight new low below the end of minor wave A at 2,797.85 to avoid a truncation.
HOURLY CHART – FLAT OR COMBINATION
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This hourly chart moves the degree of labelling within intermediate wave (B) down one degree. It is possible that only minor wave A is completing. Minor wave A here is labelled as a zigzag, but it may also be labelled as a flat correction in the same way that the first hourly chart (flat correction) labels this movement.
If minor wave A completes as a zigzag, then intermediate wave (B) may be a flat correction that may be more time consuming. When minor wave A may be complete, then minor wave B may begin to move higher and must retrace a minimum 0.9 length of minor wave A. Minor wave B may make a new high above the start of minor wave A at 2,954.86 as in an expanded flat.
If minor wave W completes as a zigzag or flat, then intermediate wave (B) may be a double combination or double flat that may be more time consuming. When minor wave W may be complete, then minor wave X may begin to move higher. Minor wave X has no minimum required length to minor wave W, and it may make a new high above the start of minor wave W at 2,954.86. Minor wave Y may then continue sideways as a flat or triangle.
HOURLY CHART – TRIANGLE
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The degree of labelling in this hourly chart is the same as the first hourly chart (flat correction). If intermediate wave (B) is subdividing as a triangle, then within it minor waves A and B may now both be complete. Minor wave C may not move beyond the end of minor wave A below 2,797.85.
Minor wave D may not move beyond the end of minor wave B above 2,930.32 if intermediate wave (B) is subdividing as a contracting triangle.
Minor wave D may end about the same level of minor wave B at 2,930.32 if intermediate wave (B) is subdividing as a barrier triangle. A barrier triangle remains valid as long as the B-D trend line looks horizontal. In practice, this means that minor wave D may end slightly above 2,930.32 (this is the only Elliott wave rule that is not absolute and requires a small degree of subjectivity).
Minor wave E for either a contracting or barrier triangle may not move beyond the end of minor wave C.
A triangle may see sideways movement continue for another two to few weeks.
ALTERNATE DAILY CHART
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This alternate daily chart follows the Second Alternate Monthly chart published here. Video is here.
By simply moving the degree of labelling in the bull market beginning March 2009 up one degree, it is possible that a Grand Super Cycle trend change occurred on February 19, 2020.
A correction at Grand Super Cycle degree may be expected to last at least a decade, possibly longer. Corrections for this market tend to be much quicker than bullish moves, and so a fair amount of flexibility is required in expectations for duration of the different degrees.
Grand Super Cycle II would most likely subdivide as a zigzag, although it may be any corrective structure except a triangle. It should begin with a five down at the weekly chart time frame, which would be incomplete.
The first wave down on the daily chart is labelled cycle wave I. If this degree of labelling is wrong, it may be too high; it may need to be moved down one degree.
Following cycle wave I, cycle wave II may be continuing higher as a zigzag. Cycle wave II may not move beyond the start of cycle wave I above 3,393.52.
When cycle wave II may again be complete, then a target for cycle wave III may be calculated.
ALTERNATE HOURLY CHART
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Cycle wave II may be a continuing higher as a single zigzag. Primary wave B within the zigzag may be nearing an end or may be about one third complete. All hourly wave counts for the main daily chart work in the same way for this alternate.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The Shooting Star pattern warns of a trend change here to either down or sideways.
A downwards week closes green. Volume does not support upwards movement within the week. Overall, this week saw price move sideways.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
In the bear market from October 2000 to March 2009, the first multi-day bounce retraced 0.73 of the first wave down. In the bear market from March 2000 to October 2002, the first multi-day bounce retraced 0.89 of the first wave down. So far this current bounce has retraced 0.63 of the first wave down, so it seems reasonable that it could continue higher.
To see what signals may be looked for to identify a high, the two previous large bear markets were analysed in end of week analysis. The DotCom crash was analysed here with video here. The Global Financial Crisis was also analysed here with video here.
There is now a bearish reversal pattern on the weekly chart but not the daily chart. It is now technically possible that the bounce is over, but the Elliott wave count sees the bounce as an incomplete structure.
Price remains range bound with resistance about 2,950 and support about 2,800. A breakout from this range is required for confidence in the next direction for price.
The bullish signal from On Balance Volume noted yesterday is today negated with On Balance Volume returning below that line as it was drawn on yesterday’s chart. Today the line is adjusted for better technical significance.
BREADTH – AD LINE
WEEKLY CHART
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.
Last week price has moved lower with a lower low and a lower high, although the candlestick has closed green. The AD line has moved higher. This is a single week instance of bullish divergence.
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
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 divergence noted in yesterday’s analysis has now been followed by downwards movement. It is judged to have been predictive.
Today both price and the AD line have moved lower. There is no new divergence.
VOLATILITY – INVERTED VIX CHART
WEEKLY CHART
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.
Last week price has moved lower with a lower low and a lower high although the candlestick has closed green. Inverted VIX has moved higher. This is a week of single instance bullish divergence.
DAILY CHART
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.
Bullish divergence noted in yesterday’s analysis has been followed by downwards movement, so it is considered to have failed.
Both price and inverted VIX have moved lower. There is no new short-term divergence.
DOW THEORY
Dow Theory has confirmed a bear market with the following lows made on a closing basis:
DJIA: 21,712.53 – a close below this point has been made on the March 12, 2020.
DJT: 8,636.79 – a close below this point has been made on March 9, 2020.
Adding in the S&P and Nasdaq for an extended Dow Theory, a bear market has now been confirmed:
S&P500: 2,346.58 – a close below this point has now been made on March 20, 2020.
Nasdaq: 7,292.22 – a close below this point was made on the March 12, 2020.
Published @ 08:30 p.m. EST.
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New updates to this analysis are in bold.