Downwards movement to begin the new trading year breached the short-term invalidation point on the hourly chart, but price remains within channels and above the invalidation point on the daily chart.

Summary: The wave count expects the low of the 30th of October to not be breached for many months or years.

For the short term, a pullback may find support about 3,643 or 3,565. Thereafter, the upwards trend may resume to the next target at 4,606.

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 3,549.85 and then below 3,233.94.

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. A longer divergence is positively correlated with a deeper bear market. A shorter divergence is positively correlated with a more shallow bear market. With zero divergence at this stage, if a surprise bear market does develop here, then it would likely be shallow.

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), (2) and now (3) may all be complete. It is also possible to move the degree of labelling within intermediate wave (3) down one degree so that only minor wave 1 may be complete at the high (alternate hourly wave count).

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.

The lower edge of the weekly best fit channel may provide support for intermediate wave (4).

HOURLY CHART

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Downwards movement today may be the start of intermediate wave (4); it may have arrived earlier than expected. If intermediate wave (3) is over at the last high, then it would be 14.72 points short of  1.618 the length of intermediate wave (1).

Intermediate wave (2) was a very deep 0.93 zigzag lasting 14 sessions. Intermediate wave (4) may also be a zigzag, but if it exhibits alternation in structure, then it may unfold as a flat, combination or triangle. Intermediate wave (4) may be shallow, and it may end about the 0.236 or 0.382 Fibonacci ratios, with the 0.236 Fibonacci ratio at 3,643.48 more likely. 

Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,549.85.

ALTERNATE HOURLY CHART

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If the degree of labelling within intermediate wave (3) is moved down one degree, then only minor wave 1 may be complete at the last high. Minor wave 2 may have begun today.

Minor wave 2 may be most likely to subdivide as a zigzag. It may end about the 0.382 or 0.618 Fibonacci ratios of minor wave 1, with the 0.382 Fibonacci ratio at 3,565.22 more likely,

Minor wave 2 may last about 2 to 3 weeks in total. Minor wave 2 may not move beyond the start of minor wave 1 below 3,233.94.

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.

It is possible that primary wave 2 may be an incomplete expanded flat correction.

Intermediate wave (B) may have continued higher as a double zigzag. Intermediate wave (B) is now 1.51 times the length of intermediate wave (A), which is beyond the common range of up to 1.38. The probability of this wave count declines as price continues 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. 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.

Light volume for the last two weeks is not of a concern as both weeks are short weeks.

DAILY CHART

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

Support at 3,725 has been breached. Next support is about 3,645 and below that about 3,588. So far the last swing low at 3,636.48 of the 21st of December remains intact. While this has not been breached, a series of higher highs and higher lows off the low of the 30th of October remains. If the last swing low is breached, then it would be possible that a trend change for the mid term has occurred. 

The Bearish Engulfing pattern today has some support from volume, but it has a bullish long lower wick. At the high neither ADX nor RSI were extreme. This pullback may be more short term in nature.

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 17th of December. This is a strong bullish signal and supports the main Elliott wave count.

Large caps all time high: 3,769.99 on January 4, 2021.

Mid caps all time high: 2,334.51 on December 28, 2020.

Small caps all time high: 1,133.23 on December 28, 2020.

Small caps have led last week with a new all time high. This is bullish.

Last week both price and the AD line have made new all time highs. Upwards movement in price has support from rising market breadth. This is bullish.

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.

Price has made a new swing low below the prior low of the 29th of December, but the AD line has not. Downwards movement today does not come with a corresponding decline in market breadth. This divergence is bullish and supports the main hourly Elliott wave count.

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.

Last week price has moved higher, but inverted VIX has moved lower. This divergence is bearish for the short term and may develop further before a reasonable pullback arrives.

Comparing VIX and VVIX: VIX has increased, but VVIX has declined last week. This divergence is bullish for price and contradicts divergence between VIX and 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.

Today inverted VIX has made a new low below the prior low of the 21st of December, but price has not. This divergence is bearish for the short term and supports the alternate hourly Elliott wave count.

Comparing VIX and VVIX at the daily chart level: Both VIX and VVIX have moved higher while price has 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.

The following major swing lows would need to be seen on a closing basis for Dow Theory to confirm a change from bull to a bear market:

DJIA: 18,213.65

DJT: 6,481.20

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a new bear market would require new lows on a closing basis:

S&P500: 2,191.86

Nasdaq: 6,631.42

Published @ 07:25 p.m. ET.

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New updates to this analysis are in bold.