S&P 500: Elliott Wave and Technical Analysis | Charts – January 5, 2021
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, the upwards trend may resume to the next target at 4,606. The main wave count expects another large consolidation prior to this target to begin before 3,920.24. The first alternate wave count considers that a larger consolidation may continue lower from here. The second alternate wave count expects a deeper pullback here.
The third alternate daily chart 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.
MAIN WAVE COUNT
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 be complete, and intermediate wave (3) may be an incomplete impulse.
Within intermediate wave (3): Minor waves 1, 2 and 3 may be complete, and minor wave 4 may not move into minor wave 1 price territory below 3,644.22.
If minor wave 3 is over, then it would be shorter in length than minor wave 1. Minor wave 3 is just 3.98 points shorter than 0.618 the length of minor wave 1. Because minor wave 3 may not be the shortest actionary wave within intermediate wave (3), minor wave 5 is limited to no longer than equality in length with minor wave 3.
Primary wave 1 looks extended. The target for primary wave 3 expects it to also be extended.
HOURLY CHART
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Minor wave 4 may be over as a quick sharp zigzag. Minor wave 5 may have begun.
Within minor wave 5: Minute wave i may have begun with two overlapping first and second waves, and minute wave ii may not move beyond the start of minute wave i below 3,662.71.
FIRST ALTERNATE WAVE COUNT
DAILY CHART
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It is also possible that intermediate wave (3) is complete and intermediate wave (4) may move lower. Intermediate wave (4) may find support about the lower edge of the weekly best fit channel.
Intermediate wave (2) was a very deep zigzag lasting 14 sessions. Intermediate wave (4) may also be a zigzag as these are by a wide margin the most common Elliott wave corrective structure, but it may also subdivide as a flat, combination or triangle.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,549.85.
HOURLY CHART
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Intermediate wave (4) may be subdividing as a zigzag. So far minor wave A may be complete. Minor wave B may also be complete as a double zigzag.
Intermediate wave (4) may continue lower to end close to the 0.236 or 0.382 Fibonacci ratios of intermediate wave (3), with the more shallow 0.236 Fibonacci ratio favoured as a target.
SECOND ALTERNATE WAVE COUNT
DAILY CHART
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This second alternate wave count is the same as the first alternate wave count, except the degree of labelling within intermediate wave (3) is moved down one degree. It is possible that only minor wave 1 may be over at the last high.
Minor wave 2 may continue lower as a deeper pullback to last several days. Minor wave 2 may not move beyond the start of minor wave 1 below 3,233.94.
HOURLY CHART
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Minor wave 2 may have begun.
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.
THIRD ALTERNATE WAVE COUNT
DAILY CHART
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In the interest of always trying to consider all possibilities 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
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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 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: 1,139.04 on January 5, 2021.
Small caps have led today 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.
Both price and the AD line have moved higher today. The AD line has made a new all time high, led by small caps. This is bullish and supports the main 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.
Short-term bearish divergence remains.
Today both price and inverted VIX have moved higher. Neither have made new short-term highs. There is no new short-term divergence.
Comparing VIX and VVIX at the daily chart level: Both VIX and VVIX have moved lower while price has moved higher 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 @ 06:33 p.m. ET.
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New updates to this analysis are in bold.