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S&P 500: Elliott Wave and Technical Analysis | Charts – September 29, 2020

by | Sep 29, 2020 | S&P 500, S&P 500 + DJIA

After strength in upwards movement yesterday, a lack of follow through today supports either of the first two short-term Elliott wave counts.

The larger picture at the weekly chart level remains essentially the same.

Summary: For the short term, weakness today suggests primary wave 2 may not be over. It may continue lower as a double zigzag or sideways as a flat or double combination.

Primary wave 2 may find support about 3,055 (most likely) or 2,725. Thereafter, the upwards trend to new all time highs may continue.

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 high above 3,428.92 would be bullish, but only if it comes with technical strength.

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

Monthly charts are 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 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

S&P 500 Daily 2020
Click chart to enlarge.

Primary wave 1 may be over and primary wave 2 may be underway.

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.

The 0.236 Fibonacci ratio of primary wave 1 at 3,258.59 has been passed. The next target is now the 0.382 Fibonacci ratio at 3,054.74. If price falls through that preferred target, then the 0.618 Fibonacci ratio at 2,725.23 would be the next target.

Primary wave 2 may now be continuing as a double zigzag or double combination, or as a single flat. Both a flat and a double are considered below.

It is also possible today that primary wave 2 may be over. However, lack of follow through on yesterday’s 80% upwards day is not convincing for this alternate view.

HOURLY CHART – DOUBLE ZIGZAG OR DOUBLE COMBINATION

S&P 500 Hourly 2020
Click chart to enlarge.

If primary wave 2 is unfolding as a double, then the first structure in a double may be complete as a zigzag and labelled intermediate wave (W).

The double may now be joined by a three in the opposite direction, a zigzag labelled intermediate wave (X). If intermediate wave (X) is complete at yesterday’s high, then it would be relatively shallow. This suggests primary wave 2 may be unfolding as a double zigzag. If intermediate wave (X) continues higher, then primary wave 2 may be unfolding as a double combination.

Double zigzags normally have a sharp slope; they are not sideways movements, and their X waves are normally shallow. The second zigzag in a double has the purpose of deepening the correction when the first does not move price deep enough. If primary wave 2 unfolds as a double zigzag, then intermediate wave (Y) may bring price lower to the 0.382 Fibonacci ratio.

Double combinations are sideways movements. Their X waves are normally deep. The second structure in a double has the purpose of taking up time and moving price sideways. The second structure in a double for primary wave 2 labelled intermediate wave (Y) may unfold as either a flat or triangle and may end about the same level as intermediate (W) at 3,209.45.

There is no rule stating a limit for X waves in both of a double zigzag and double combination. Intermediate wave (X) may make a new high above the start of intermediate wave (W) at 3,588.11, especially if primary wave 2 unfolds as a double combination. X waves should exhibit weakness. Technical analysis would be used to identify the probability of this wave count.

HOURLY CHART – FLAT

S&P 500 Hourly 2020
Click chart to enlarge.

It is also possible that primary wave 2 may continue sideways as a flat correction.

Intermediate wave (A) within a flat correction must subdivide as a three; it may be a complete zigzag. Intermediate wave (B) should then unfold higher as a three; it may make a new price extreme beyond the start of intermediate wave (A) at 3,588.11, as in an expanded flat.

Intermediate wave (B) within a flat must retrace a minimum 90% of intermediate wave (A). The common range for intermediate wave (B) is from 1 to 1.38 times the length of intermediate wave (A).

B waves should exhibit weakness. Technical analysis in coming days will be used to judge the probability of this wave count.

ALTERNATE HOURLY CHART

S&P 500 Hourly 2020
Click chart to enlarge.

It is also possible that primary wave 2 was over as a relatively brief and shallow 0.27 zigzag. Either a 90% up day or two back to back 80% up days, or some other strong bullishness in technical analysis, would be required before confidence in this alternate wave count may be had. At this stage, it is published as the least likely short-term wave count.

Primary wave 3 may only subdivide as an impulse. Intermediate wave (1) within primary wave 3 may be incomplete. Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 3,209.45.

Minor waves 1 and 2 within intermediate wave (1) may be complete. Minor wave 3 may be complete. Minor wave 4 may not move into minor wave 1 price territory below 3,278.70.

SECOND WAVE COUNT

DAILY CHART

S&P 500 Daily 2020
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

S&P 500 Daily 2020
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 (it is now off to the left of the chart).

Minor wave 2 may be complete.

Minor wave 3 may have begun. Minor wave 3 may only subdivide as an impulse. Minute wave i within minor wave 3 may be complete. Minute wave ii may not move beyond the start of minute wave i above 3,428.92.

The depth of minute wave ii reduces the probability of this wave count for the short term.

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

S&P 500 Weekly 2020
Click chart to enlarge. Chart courtesy of StockCharts.com.

A doji last week represents a pause and is not on its own a reversal pattern. Doji in down trends do not hold as much significance as when they occur in up trends.

This week the bearish signal from On Balance Volume supports the view that price may continue to fall this week.

DAILY CHART

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

Selling normally intensifies near lows. Two 80% down days (both near 90% down days but not quite) within the last six sessions suggests selling is intensifying. With Stochastics oversold and price bouncing up off support about 3,200, it is possible that a low may be in place here.

However, the return of strength in buying is absent. Although Friday saw a strong green candlestick to complete a Morning Star pattern, it lacks support from volume which significantly weakens the reversal pattern.

The last 80% down day (which was very strong, close to a 90% down day) was followed three sessions later by an 80% up day (not close to a 90% up day). For confidence that the pullback is over and strength in buying has returned, that 80% up day should be followed immediately by another 80% up day, but it has not been. At this stage, the conclusion is that it looks more likely that the pullback may yet move lower before it is over.

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.

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 was 7 and a half months of bearish divergence between price and the OCO AD line at the September high. This may now support the more bearish second wave count. It is possible now that a major trend change may have occurred.

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 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

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.

Today both price and the AD line have moved lower. There is no new divergence.

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.

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 to make a new short-term low below the low of two weeks prior, but inverted VIX has not made a corresponding new low. This divergence is bullish for the short term.

Comparing VIX and VVIX: Last week VIX has increased, but VVIX has declined. This divergence is bullish for price in the very short term.

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.

Today both price and inverted VIX have moved lower. There is no new divergence.

Inverted VIX remains well above lows of the 3rd to 8th of September, but price is below. This divergence remains bullish.

Comparing VIX and VVIX at the daily chart level: Short-term bearish divergence noted yesterday has been followed by a little downwards movement today, so it may now be resolved. Today VIX has moved very slightly higher, but VVIX has moved lower. This divergence is bullish for the very short term 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 @ 06:57 p.m. ET.


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New updates to this analysis are in bold.

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