Again, VIX and the AD line both give signals for the direction of price tomorrow. The short-term target remains the same.

Summary: For the very short term, this bounce may end about 3,481 but at least above 3,455.13. Thereafter, downwards movement may continue.

The first wave count expects that a pullback or consolidation to last about one to a few weeks has begun. It may find support about 3,259, 3,055 or 2,725.

The second wave count considers the possibility that a once in multi-generations trend change may have just occurred. Some confidence in this wave count would come with invalidation of the first wave count below 2,191.86.

At this stage, a new all time high above 3,588.11 would be bullish. The next target would then be at 4,706.

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 6 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 complete. 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.

The best fit channel is breached by clearly downwards movement. This adds confidence in a trend change, at least for the short or mid term. A deeper bounce here may find resistance about the lower edge of this channel for a back test.

Primary wave 1 may be over and primary wave 2 may have begun.

Primary wave 2 may be a multi-week pullback or consolidation. Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

Today three hourly charts are considered. They are placed in order of probability. 

HOURLY CHART

Click chart to enlarge.

Primary wave 2 may have begun. It would most likely subdivide as a zigzag, but it may subdivide as any Elliott wave corrective structure except a triangle.

A correction at primary degree should begin with a five wave structure downwards at the hourly chart level, which may be complete and is labelled intermediate wave (A). This degree of labelling may need to be moved down one degree depending upon how primary wave 2 unfolds.

A five wave structure downwards should then be followed by a three wave structure upwards, which may not move beyond the start of the five down. This will at this stage be labelled intermediate wave (B).

Intermediate wave (B) may subdivide as any Elliott wave corrective structure.

Intermediate wave (B) may be subdividing as an expanded flat correction. Expanded flats are fairly common structures, particularly in B wave positions. The common range for minor wave B within an expanded flat is from 1 to 1.38 times the length of minor wave A. At 1.37 minor wave B fits within this common range. The target calculated for minor wave C expects it to exhibit the most common Fibonacci ratio to minor wave A. The target may be met in another one or two sessions.

Intermediate wave (B) may not move beyond the start of intermediate wave (A) above 3,588.11.

Primary wave 2 would most likely continue longer and move deeper for it to have a normal look.

ALTERNATE HOURLY CHART

Click chart to enlarge.

It is possible that primary wave 2 was over as a very brief and shallow double zigzag. This would not have the right look on the daily chart, but there is today some support from technical analysis for this bullish view.

A new all time high above 3,588.11 would add confidence to this wave count. 

The target is conservative. If price reaches this target and either the structure is incomplete or price keeps rising, then a second target using the next Fibonacci ratio in the sequence would be calculated.

No second wave correction within primary wave 3 may move beyond the start of its first wave below 3,310.47.

SECOND ALTERNATE HOURLY CHART

Click chart to enlarge.

It is possible that intermediate wave (B) was over a few days ago as a brief shallow zigzag. Intermediate wave (C) may have begun. Minor waves 1 and 2 within intermediate wave (C) may be complete.

Minor wave 3 may only subdivide as an impulse. Minute wave ii within minor wave 3 may not move beyond the start of minute wave i above 3,425.55.

This wave count sees intermediate wave (B) as too brief; both minor wave 2 and minute wave ii have lasted longer than intermediate wave (B). The proportions of these corrections do not look right, which reduces the probability of this wave count.

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 complete.

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

A new bear market at Grand Super Cycle degree may be expected to last over a decade. It may take price below the start of Super Cycle wave (V) at 666.79 in March 2009.

HOURLY CHART

Click chart to enlarge.

It is possible that a Grand Super Cycle degree trend change may have occurred.

The first five down within the new trend is labelled minor wave 1. Minor wave 2 may not move beyond the start of minor wave 1 above 3,588.11.

Minor wave 2 may be subdividing as an expanded flat. The structure of minor wave 2 is labelled in the same way as the expanded flat for intermediate wave (B) on the first wave count. The target is the same.

TECHNICAL ANALYSIS

WEEKLY CHART

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

ADX indicates an upwards trend. However, with RSI exhibiting bearish divergence and a bearish candlestick reversal pattern at the high having support from volume, further pullback or consolidation at least for the short term may be expected here.

Last week was a short week with New York closed on Monday, so not much weight should be given to some decline in volume at the weekly chart level.

DAILY CHART

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

In extreme conditions a bearish candlestick pattern should be given weight; a trend change should be expected to be either downwards or sideways. Bearish candlestick patterns make no comment on the direction of the next trend (either a consolidation to relieve extreme conditions or a full 180° reversal) nor on how long the new trend may last.

The bearish candlestick pattern has support from volume. However, three prior Bearish Engulfing patterns can be seen on this chart on 12th of May, 11th June and 11th of August. None were followed by any substantial downwards movement; all were short-term corrections within an ongoing upwards trend.

Expect price to continue to fall overall until it finds support and at the same time Stochastics reaches oversold. Support lines are noted on the chart. Next support is at 3,295. Stochastics is just now oversold and price is near support, so a bounce may be expected. For confidence in the resumption of an upwards trend, a bullish candlestick pattern or volume to support upwards movement may be seen.

Today there is no support from volume and no bullish candlestick pattern. However, this session may have completed an 80% up day. If tomorrow also completes an 80% or 90% up day, then a sustainable low may be assumed to be in place.

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 lower. There is no new divergence.

Large caps all time high: 3,588.11 on September 2, 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.

This rise has been 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.

The AD line has made a new high above the prior high of 3 sessions ago, but price has not. This divergence is bullish for the short term.

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.

Last week price has moved lower, but inverted VIX has moved higher. This divergence is bullish for the short term.

Comparing VIX and VVIX: From weeks beginning 1st June to four 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.

Inverted VIX has made a new high above the prior high three sessions ago, but price has not. This divergence is bullish for the short term.

Comparing VIX and VVIX at the daily chart level: The last bullish short-term signal has now been followed by upwards movement in 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 @ 07:44 p.m. ET.

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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.

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New updates to this analysis are in bold.