Overall, for this week the first wave count has expected a pullback or consolidation to continue. A downwards week fits this expectation.

Summary: Downwards movement may continue next week.

The first wave count expects that a pullback or consolidation to last a few weeks is about two thirds complete. It may find support about 3,259, 3,055 (now most likely) or 2,725.

The second wave count considers the possibility that a once in multi-generations trend change may have 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 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.

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.

For the S&P500, the first multi-week second wave correction within a new trend is not always very deep. Two examples from prior bull markets: after the bear market of October 1987, the first multi-week second wave in the following bull market ended in September 1990 and was only a 0.49 correction of its corresponding first wave, and more recently the last bull market beginning in March 2009 saw its first multi-week second wave correction end in June 2009, which was only a 0.30 correction of its corresponding first wave. 

For primary wave 2, in this instance, the 0.236 Fibonacci ratio at 3,258.59 may provide support and the 0.382 Fibonacci ratio at 3,054.74 is a preferred target. If price falls through that preferred target, then the 0.618 Fibonacci ratio at 2,725.23 would be the next target.

HOURLY CHART

Click chart to enlarge.

Primary wave 2 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 still need to be moved down one degree depending upon how primary wave 2 unfolds.

Intermediate wave (C) must subdivide as a five wave structure, most likely an impulse. Minor wave 1 within intermediate wave (C) may be nearing completion. Minor wave 2 may see a bounce that may last one to a very few sessions and may not move beyond the start of minor wave 1 above 3,428.92.

SECOND WAVE COUNT

DAILY CHART

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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 be a complete double combination. The first structure in the double may be a complete zigzag labelled minute wave w. The double may be joined by a complete three in the opposite direction, a zigzag labelled minute wave x. The second structure in the double may be a complete expanded flat correction labelled minute wave y.

Minor wave 3 may have begun. No second wave correction within minor wave 3 may move beyond the start of its first wave above 3,428.92. Leaving the invalidation point at the start of minor wave 3 allows for alternate labelling within minor wave 3. The labelling may need to be moved down one degree if minor wave 3 becomes a long extension.

When intermediate wave (1) may be complete, then the invalidation point would have to move back up to its start. Intermediate wave (2) should be a bounce to last at least a week or two, and it may not move beyond the start of intermediate wave (1) above 3,588.11.

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.

This week saw a volume spike for options expiration on 18th September. Although volume is pushing price lower, options expiry weakens this signal.

DAILY CHART

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

The short-term volume profile is now bearish.

A slightly long lower wick for Friday suggests a bounce up off support may occur on Monday at 3,295. A close below this support level should expect further falls in price to next support. The bearish signal from On Balance Volume and the bearish volume profile suggest overall more downwards movement may be expected for next week.

Look for price to find support while Stochastics is fully oversold. That is not the case yet, but it may be soon. Thereafter, a bullish candlestick pattern would indicate an end to the pullback and possibly the resumption of the upwards trend.

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.

This week price has completed an outside week and the AD line has declined. 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.

For Friday price has made new lows below prior short-term lows of the 8th and 11th of September, but the AD line has not. There is now double bullish divergence suggesting this pullback is short term in nature. This supports the first Elliott wave count and suggests the pullback may be shallow and may end sooner rather than later.

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.

This week price has completed an outside week and inverted VIX has increased. There is no new short-term divergence.

Comparing VIX and VVIX: This week both VIX and VVIX have declined. VVIX has made a new short-term low below the low of seven weeks prior, but VIX has not. This divergence is bullish for price and supports the first Elliott wave count.

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.

On Friday price has moved lower, but inverted VIX has moved higher. Downwards movement in price has not come with a normal corresponding increase in volatility. Volatility has declined. This divergence is bullish for price.

Comparing VIX and VVIX at the daily chart level: VVIX remains at lower levels than VIX. This short-term divergence is still bullish 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 @ 08:29 p.m. ET.

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New updates to this analysis are in bold.