S&P 500: Elliott Wave and Technical Analysis | Charts – December 11, 2020
The short-term Elliott wave count is changed. The longer-term view remains the same and has strong support from market breadth.
Summary: The wave count expects the low of the 30th of October to not be breached for many months or years. A new mid-term target is at 3,785. The next target is at 4,606. The invalidation point is at 3,549.85.
An alternate is considered at the daily chart level. It is judged to have a very low probability. For confidence it requires a new low below 3,581.16 and then below 3,549.85.
The biggest picture, Grand Super Cycle analysis, is here.
Monthly charts are last updated here with video here.
ELLIOTT WAVE COUNT
WEEKLY CHART
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Cycle wave V may last from one to several years. So far it is in its ninth month.
This wave count may allow time for the AD line to diverge from price as price makes final highs before the end of the bull market. The AD line most commonly diverges a minimum of 4 months prior to the end of a bull market.
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 waves 1 and 2 may be complete.
Primary wave 3 may only subdivide as an impulse.
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.
DAILY CHART
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Primary waves 1 and 2 may both be complete. Primary wave 3 may be underway.
Primary wave 3 may only subdivide as an impulse. Within primary wave 3: Intermediate waves (1) and (2) may both be complete, and intermediate wave (3) may be underway and may only subdivide as an impulse. A target is calculated for intermediate wave (3).
Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,549.85.
Primary wave 1 looks extended. The target for primary wave 3 expects it to also be extended.
This wave count now expects that a third wave at three large degrees (minor, intermediate and primary) may have just passed through its middle portion. Each successive fourth wave correction must remain above its corresponding first wave price territory.
When third waves extend they do so in price as well as time. Extended waves usually exhibit corrections within them that are more time consuming than those within waves that are not extended.
If the best fit channel provides support here, then Monday should resume upwards movement.
HOURLY CHART
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Downwards movement may be minuette wave (iv), which may have ended just above minuette wave (i) price territory. If it continues any lower, then minuette wave (iv) may not move into minuette wave (i) price territory below 3,628.51.
If minuette wave (iii) is over at the last high, then it would be 9.31 points short of 1.618 times the length of minuette wave (i).
A target is calculated for minuette wave (v) that expects the most common Fibonacci ratio to minuette wave (i).
If this wave count is invalidated in the short term, then the alternate wave count may be used below.
ALTERNATE HOURLY CHART
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It is also possible to see minute wave iii over and downwards movement of the last three sessions as minute wave iv. Minute wave iv may not move into minute wave i price territory below 3,581.16. The high of minute wave i may be seen on the daily chart.
If minute wave iv is to remain within the best fit channel, then it may be complete as a single zigzag. It may also move lower and breach the channel; it may continue as a double zigzag.
If minute wave iii is complete, then it would be 12.51 points longer than 2.618 the length of minute wave i.
ALTERNATE DAILY CHART
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In the interest of always trying to consider all possibilities (so as to not be left without a potential pathway should the main wave count become invalidated) this alternate is considered.
This alternate wave count does not have support from classic technical analysis at this time, so it is judged to have a low probability. However, low probability does not mean no probability. Confidence / invalidation points may be used to judge any change in probability between the two wave counts. The first confidence point is changed to match the new short-term labelling on the main hourly chart.
It is possible that primary wave 2 may be an incomplete expanded flat correction. A target is calculated for intermediate wave (C) that expects a common Fibonacci ratio to intermediate wave (A).
The zigzag within intermediate wave (B) may have just completed, or it may yet move higher.
There is no rule for flat corrections that state a limit for B waves, so it is possible that intermediate wave (B) may extend higher as a double zigzag. If intermediate wave (B) were to reach twice the length of intermediate wave (A) at 3,942.28, then the idea of a flat correction should be discarded based upon a very low probability.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
This chart is bullish and still supports the main Elliott wave count. All of volume, ADX and MACD are bullish. There is no bearish candlestick reversal pattern. Conditions are not extreme. There is room for this upwards trend to continue.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Overall, this chart is bullish and still supports the Elliott wave count. There is a series of higher highs and lower lows from the low on the 24th of September.
Neither ADX nor RSI are yet extreme. There is room for an upwards trend to continue.
The bearish reversal pattern has a little support from volume. This offers a very small support to the alternate Elliott wave count, but on balance this chart offers more support to the main Elliott wave count. Now two days of downwards movement following the reversal pattern exhibit weakness in downwards movement. Volume is no longer pushing price lower. Both candlesticks have closed green, and now the last candlestick has a bullish long lower wick. Price has not closed below support at 3,645.
The bearish signal from On Balance Volume has reasonable technical significance and may offer some support to the alternate Elliott wave count.
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 made a new all time high on the 10th of December. This is a strong bullish signal and supports the main Elliott wave count.
Large caps all time high: 3,712.39 on December 9, 2020.
Mid caps all time high: 2,264.67 on December 9, 2020.
Small caps all time high: 1,103.95 on December 9 2020.
This week both price and the AD line have made new all time highs. Upwards movement has support from rising market breadth. This is bullish and supports the main daily 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.
Today both price and the AD line have moved a little lower. There is no new short-term divergence.
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 over 3 years of bearish divergence between price and inverted VIX. There is all of long, mid and short-term bearish divergence. This bearish divergence may develop further before the bull market ends. It may be a very early indicator of an upcoming bear market, but it is not proving to be useful in timing.
This week price has moved a little higher although the candlestick has closed red, but inverted VIX has moved lower. This divergence is bearish for the short term.
Comparing VIX and VVIX: Bearish divergence for the short term noted in last week’s analysis has been followed by some downwards movement of price in the latter part of this week. This week VVIX has made a new short-term swing high above the prior high of the week beginning 16th November, but VIX has not. VVIX is increasing faster than VIX. This divergence is bearish for price and supports the alternate daily 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.
Inverted VIX has made a new low strongly below the prior point of the 30th November, but price has not. This divergence is bearish for the short term and may support the alternate daily Elliott wave count.
Comparing VIX and VVIX at the daily chart level: Both VIX and VVIX have moved lower today. There is no new short-term divergence.
DOW THEORY
Dow Theory confirms a new bull market with new highs made on a closing basis:
DJIA: 29,568.57 – closed above on 16th November 2020.
DJT: 11,623.58 – closed above on 7th October 2020.
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 @ 07:20 p.m. ET.
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New updates to this analysis are in bold.