Another small range day moves price slightly lower.

At the end of this week, the monthly technical analysis chart is analysed.

Summary: For the short term, some upwards movement may unfold next week to short-term targets at 3,437 or 3,550.24 or above. This view has support from short-term bullish divergence between price and the AD line.

For the mid term, primary wave 2 may not be over. It may continue overall 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 3,588.11 would invalidate the second very bearish Elliott wave count, leaving only a bullish Elliott wave count.

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 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. The daily chart labels primary wave 2 as a possible double zigzag, but this labelling may change as primary wave 2 continues to unfold. For the short term, a little upwards movement next week may complete intermediate wave (X). 

It is also possible that primary wave 2 may be over, but this looks less likely.

HOURLY CHART – DOUBLE ZIGZAG OR DOUBLE COMBINATION

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), which may be incomplete. When intermediate wave (X) is complete, then it should look like an obvious three wave movement. Minor wave B within it may be complete. Minor wave C upwards may unfold next week towards the target.

If minor wave A is correctly labelled as a five wave impulse, then if minor wave B continues lower it may not move beyond the start of minor wave A below 3,209.45.

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

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.

When intermediate wave (B) is complete, then it should look like a three wave movement. Minor wave B within it may be complete. Minor wave C may now unfold higher.

If minor wave A is correctly labelled as a five wave impulse, then if minor wave B continues lower it may not move beyond the start of minor wave A below 3,209.45.

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

Click chart to enlarge.

It is also possible that primary wave 2 was over as a relatively brief and shallow 0.27 zigzag. This alternate wave count 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.

Intermediate wave (2) may be complete as a brief shallow zigzag. Intermediate wave (3) may begin to exhibit strength next week.

If intermediate wave (2) continues lower, then it may not move beyond the start of intermediate wave (1) below 3,209.45.

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.

A first five down, labelled minor wave 1, may be complete. Minor wave 2 may now be continuing higher as a zigzag.

HOURLY CHART

Click chart to enlarge.

Minor wave 2 may be an incomplete zigzag. Minute wave a within the zigzag may now be a complete five wave impulse. Minute wave b may be complete as a zigzag. Minute wave c may move higher next week to take minor wave 2 up to the 0.618 Fibonacci ratio of minor wave 1. If this target is wrong, then it may not be high enough. The first correction within a bear market for the S&P is often very deep.

If it continues lower, then minute wave b may not move beyond the start of minute wave a below 3,209.45.

TECHNICAL ANALYSIS

MONTHLY CHART

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

The month of September is complete. It has completed a bearish candlestick reversal pattern of Dark Cloud Cover. This is not a particularly strong reversal pattern though.

At the high for September, there is now triple long-term bearish divergence between price and RSI after RSI reached deeply overbought back in January 2018. 

Price continues to rise on declining volume, although so far volume for April to July 2020 has shown an increase beyond that seen in prior years on this chart.

Overall, this upwards trend looks tired, but it may yet continue for many months before a final high is found. A new swing low below the March 2020 low would be very bearish. While that has not happened, it would be safest to assume that the upwards trend remains.

WEEKLY CHART

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

A small range week with a longer upper wick and declining volume is not convincing for bulls this week. With a lack of support for upwards movement, it looks like the pullback may continue lower.

DAILY CHART

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

At this stage, upwards movement of this week still lacks enough strength to have confidence that a sustainable low may be in place.

This supports the main Elliott wave count view that a pullback may continue lower.

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 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.

This week the AD line has made a new short-term high above the high of two weeks prior, but price has not. This divergence is bullish for the short term.

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.

On Friday price has moved lower, but the AD line has moved higher to make a new short-term high. 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.

This week price has moved higher, but inverted VIX has declined. This divergence is bearish for the short term. It will be given less weight than the AD line though as the AD line tends to be more reliable.

Comparing VIX and VVIX: This week both have moved higher. There is no new 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.

Short-term bearish divergence has been followed by downwards movement in price, so it may now be resolved. On Friday 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 has been followed by a downwards session in price, so it may now be resolved. On Friday both VIX and VVIX have moved higher. There is no new short-term divergence.

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 @ 09:04 p.m. ET.

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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.

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New updates to this analysis are in bold.