Price is now very close to the short-term target at 3,520.

Summary: A target for upwards movement to end is at 3,800.

For the short term, a pullback or consolidation may have begun at today’s high. The bearish alternate (second wave count, daily alternate chart) considers the possibility that a huge trend change may have occurred today.

There is now a very strong cluster of bearish divergence between price and the AD line, and price and VIX. Today there is also a bearish signal from On Balance Volume. With RSI now extreme, the warning that a large bearish move may be close is getting louder. Risk management is extremely important in this type of environment. It is looking now like a blow off top or bubble may be forming. Either alternate wave count may outline this possibility.

Confidence in a deeper and longer lasting correction may be had if price makes a new low below 3,354.68. 

A new low below 2,191.86 would be extremely bearish.

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

Monthly charts are here, with video here.

ELLIOTT WAVE COUNTS

FIRST WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave V may last from one to several years. So far it has lasted 5 months.

Cycle wave V would most likely subdivide as an impulse. But if overlapping develops, then an ending diagonal should be considered. This chart considers the more common impulse.

Primary wave 1 may be incomplete. Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

There is already a Fibonacci ratio between cycle waves I and III within Super Cycle wave (V). The S&P500 often exhibits a Fibonacci ratio between two of its actionary waves but rarely between all three; it is less likely that cycle wave V would exhibit a Fibonacci ratio. The target for Super Cycle wave (V) to end would best be calculated at primary degree, but that cannot be done until all of primary waves 1, 2, 3 and 4 are complete. The target at 4,034 is provisional, so it may change.

DAILY CHART

Click chart to enlarge.

A target is calculated for intermediate wave (5) to complete primary wave 1, based upon the most common Fibonacci ratio to intermediate wave (1).

The best fit channel contains all of primary wave 1.

When this best fit channel is breached by a full daily candlestick below and not touching the lower edge, then that may be taken as an indication that primary wave 1 may be over and primary wave 2 may have begun.

HOURLY CHART

Click chart to enlarge.

Intermediate wave (5) must subdivide as a five wave motive structure, most likely an impulse. Minor wave 1 within intermediate wave (5) may be complete today. Minute wave v may have completed an ending contracting diagonal today.

Minor wave 2 may be a brief pullback within the ongoing upwards trend. The first second wave correction within a new trend for the S&P500 is not always very deep. The 0.382 Fibonacci ratio at 3,453 may be a favoured target. Below that the 0.618 Fibonacci ratio at 3,416 would be the next target.

Minor wave 2 may not move beyond the start of minor wave 1 below 3,354.69.

ALTERNATE HOURLY CHART

Click chart to enlarge.

By simply moving the degree of labelling within intermediate wave (5) up one degree, it is possible that primary wave 1 may be complete today.

Primary wave 2 should last at least a few days to a couple of weeks or so. The 0.382 Fibonacci ratio of primary wave 1 is at 2,976; for this wave count, that may be the favoured target. Below that is the 0.618 Fibonacci ratio at 2,677.

Primary wave 2 may not move beyond the start of primary wave 1 below 2,181.86.

SECOND WAVE COUNT

DAILY CHART

Click chart to enlarge.

This wave count is the same as the first wave count with the exception of the degree of labelling within cycle wave V. If the degree of labelling is moved up one degree, then it is possible that cycle wave V to end Super cycle wave (V) to end Grand Super Cycle wave I is very close to completion.

Primary waves 1 through to 4 within cycle wave V may be complete. Primary wave 5 may be almost complete.

A new low below 3,354.68 would indicate at least a short-term trend change.

A new low below 2,191.86 would add full confidence in this wave count. At that stage, the first wave count would be invalidated.

HOURLY CHART

Click chart to enlarge.

At the hourly chart level, this wave count is essentially the same as the first wave count with the first exception being the degree of labelling. Here, the degree of labelling is one degree higher.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 3,354.69. Intermediate wave (2) may have begun today.

ALTERNATE HOURLY CHART

Click chart to enlarge.

If the degree of labelling within primary wave 5 is moved up one degree, then it is possible that a Grand Super Cycle degree trend change may have occurred today.

TECHNICAL ANALYSIS

WEEKLY CHART

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

The measuring gap gives a target calculation at 3,813.35.

ADX is not extreme. RSI is not overbought. There is room for this upwards trend to continue.

However, there remains weakness in longer-term bearish divergence between price and RSI.

DAILY CHART

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

Assume the trend remains the same, upwards, until proven otherwise.

There has now been seven sessions in a row of upwards movement. Within those seven sessions, down volume has dominated for four sessions, the majority.

Today there is a bearish candlestick reversal pattern.

RSI is overbought and today exhibits a single day of bearish divergence with price. ADX is extreme. On Balance Volume today gives a bearish signal.

It would be reasonable to expect at least a consolidation to relieve extreme conditions here or very soon indeed. Risk management for long positions is strongly advised.

A new low below 3,354.69 at least should be seen for confidence in a trend change.

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.

Lowry’s Operating Companies Only AD line has still not made new all time highs. The last high for the OCO AD line was in the week beginning January 13, 2020. There is now 7 and a half months of bearish divergence between price and the OCO AD line. This may now support the more bearish second wave count. It is possible now that a major trend change may occur.

The NYSE All Issues AD line made new highs in the week beginning 1st of June.

Last week both price and the AD line have moved higher, but while price has made a new high the AD line has not. This divergence is bearish for the short term.

Large caps all time high: 3,514.77 on August 31, 2020.

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

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

Again, last week only large caps made new all time highs. This rise is led by large caps, which is a feature of an aged bull market. Only large caps have made new highs above the last swing high of the 11th of August.

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.

Again, today price has made another new all time high, but the AD line has not. This divergence is bearish.

Today price moved higher, but the AD line has moved lower. Upwards movement today did not come with a normal corresponding rise in market breadth.

There is now a fairly strong cluster of bearish signals now from the AD line, a multi-week pullback may now be very close.

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.

Inverted VIX remains well below all time highs. The all time high for inverted VIX was in the week beginning October 30, 2017. There is nearly 3 years of bearish divergence between price and inverted VIX. There is all of long, mid and short-term bearish divergence.

Price has moved higher for the last two weeks, but inverted VIX has moved lower. This divergence is bearish.

Comparing VIX and VVIX: From weeks beginning 1st June to two weeks ago, VIX has made new lows as price has made new highs, but VVIX has failed to make corresponding new lows with VIX. VVIX remains slightly elevated. This divergence is not strong, but it is bearish for price.

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.

Price has moved higher to make a new all time high, but inverted VIX has moved strongly lower. This divergence is bearish.

Today inverted VIX has made a new low strongly below the 11th of August, but price is well above this point. This divergence is bearish and strong.

Comparing VIX and VVIX at the daily chart level: Both remain elevated. This is bearish for price.

DOW THEORY

Dow Theory still concludes a bear market is in place.

Dow Theory confirmed a bear market with the following lows made on a closing basis:

DJIA: 21,712.53 – a close below this point was been made on the March 12, 2020.

DJT: 8,636.79 – a close below this point was been made on March 9, 2020.

Adding in the S&P and Nasdaq for an extended Dow Theory, a bear market was confirmed:

S&P500: 2,346.58 – a close below this point was made on March 20, 2020.

Nasdaq: 7,292.22 – a close below this point was made on the March 12, 2020.

At this time, to shift Dow Theory from viewing a bear market to confirmation of a new bull market would require new highs made on a closing basis:

DJIA: 29,568.57

DJT: 11,623.58

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a bull market would require new highs made on a closing basis:

S&P500: 3,393.52 – closed above on 21st August 2020.

Nasdaq: 9,838.37 – closed above on June 8, 2020.

Published @ 06:37 p.m. ET

—
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.