Downwards movement on Friday may be a continuation of a fourth wave correction.

Summary: Both main and alternate wave counts expect the low of the 30th of October to not be breached for many months or years.

The next target for the upwards trend is at 4,608.

For the short term, if this pullback continues lower, then the next target would be at 3,687 and below that 3,600. This is still expected to be a short-term pullback within an ongoing upwards trend.

An alternate wave count at the weekly chart level has an about even probability with the main weekly chart.

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

Monthly charts are last updated here with video here.

MAIN WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave V may last from one to several years. So far it is in its tenth 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

Click chart to enlarge.

Primary waves 1 and 2 may both be complete. Primary wave 3 may be underway.

Primary wave 3 may only subdivide as an impulse.

Intermediate wave (4) may continue lower next week. Next area of support would be the 0.236 Fibonacci ratio of intermediate wave (3) at 3,686.80, and below that the 0.382 Fibonacci ratio at 3,600.26.

Intermediate wave (4) has breached the lower edge of the weekly best fit channel. This is fairly common behaviour for the S&P500 as it does not always work well with trend channels.

An Elliott channel is added in beige about primary wave 3. If it is long lasting enough, then intermediate wave (4) may find support about the lower edge of this channel.

Intermediate wave (2) was a very deep zigzag lasting 14 sessions. Intermediate wave (4) may be an incomplete expanded flat so far lasting 14 sessions. There is alternation and good proportion between intermediate waves (4) and (2).

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.

HOURLY CHART

Click chart to enlarge.

It looks most likely that intermediate wave (4) may be incomplete and may require one final low for minuette wave (v) within minute wave v.

The next target for support would be the 0.236 Fibonacci ratio at 3,686.80. Below that there should be strong support at the 0.382 Fibonacci ratio at 3,600.26.

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

ALTERNATE HOURLY CHART

Click chart to enlarge.

Intermediate wave (4) may again be complete as an expanded flat. This exhibits alternation with the zigzag of intermediate wave (2). There is now excellent proportion between intermediate waves (2) and (4).

Minor wave 2 within intermediate wave (5) may not move beyond the start of minor wave 1 below 3,694.12.

ALTERNATE WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

This wave count is the same as the first weekly chart with the exception of the degree of labelling within cycle wave V.

If the degree of labelling within cycle wave V is moved down one degree, then only primary wave 1 may be currently unfolding. When primary wave 1 may be complete, then a multi-week pullback or consolidation may begin for primary wave 2. Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

This wave count is more bullish than the main weekly chart. It expects that cycle wave V may be in an earlier stage and may yet last many more years than the main weekly chart expects it to. These two weekly wave counts are of an even probability. In coming months to years classic technical analysis will be used to judge the probability of these two weekly wave counts.

DAILY CHART

Click chart to enlarge.

This wave count is the same as the first daily chart except the degree of labelling is one degree lower within primary wave 1.

The target for a third wave up to end is the same.

TECHNICAL ANALYSIS

WEEKLY CHART

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

This week completes a strong bearish candlestick reversal pattern that has support from volume. This has come when the prior upwards trend did not exhibit extreme conditions. A normal pullback within an ongoing trend looks most likely here.

On Balance Volume suggests more downwards movement here for the short term.

DAILY CHART

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

For both the 27th and 28th of January up volume has dominated and volume remains relatively heavy. This is overall bullish. Now for Friday downwards volume has dominated and volume remains heavy. This is bearish for the short term.

ADX now indicates a downwards trend.

For evidence that this pullback is over one of the following will be looked for:

– a bullish candlestick reversal pattern with support from volume;

– a 90% up day or two back to back 80% up days;

– bullish signals from one or more of the AD line, VIX and On Balance Volume.

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 20th of January. This is a strong bullish signal and supports the main Elliott wave count.

Large caps all time high: 3,870.90 on January 26, 2021.

Mid caps all time high: 2,482.63 on January 25, 2021.

Small caps all time high: 1,258.83 on January 25, 2021.

This week both price and the AD line have moved lower. Downwards movement in price has support from declining market breadth, but breadth is not declining faster than price. There is no short-term 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.

Today both price and the AD line have moved lower. There is no 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 both price and inverted VIX have moved lower. Inverted VIX has made new lows below the week beginning December 3, 2020, but price has not. This divergence is bearish for the short term.

Comparing VIX and VVIX: Both VIX and VVIX 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.

On Friday both price and inverted VIX have moved lower. Price has made a new low below the low two sessions prior, but inverted VIX has not. This divergence is bullish for the very short term.

Comparing VIX and VVIX at the daily chart level: VVIX has made a new high above the high of October 28, 2020, but VIX has not. This divergence is bearish for the mid term. Both VIX and VVIX have for the last session moved higher. There is no new 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 @ 08:14 p.m. ET.

—
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.

—
New updates to this analysis are in bold.