A strong downwards day completes an 80% down day. This fits the alternate Elliott wave count for the short term.

Summary: The last pullback may still be over. If it continues further, then it may now most likely be as a sideways consolidation rather than a deeper pullback. For this correction to continue lower as a fourth wave it may only now be as an expanding triangle, which are very rare structures. But low probability does not mean no probability. Today an 80% down day with bearish divergence from both the AD line and VIX indicate more downwards movement for the short term.

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

The next targets for the upwards trend are first at 4,072 and then a zone at 4,585 – 4,606. About either of these targets another multi-week pullback or consolidation may develop.

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 eleventh 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.

Primary wave 3 has now moved well above the end of primary wave 1. Primary wave 4 may not move into primary wave 1 price territory below 3,588.11.

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 blue weekly best fit channel is slightly adjusted, so that the lower edge may better show where price may find support. Copy this over to the daily chart.

DAILY CHART

Click chart to enlarge.

The daily chart focusses on the unfolding impulse of primary wave 3.

Primary wave 3 may only subdivide as an impulse.

Intermediate waves (1) through to (4) may be complete. Intermediate wave (5) may be underway.

Intermediate wave (2) was a very deep zigzag lasting 14 sessions. Intermediate wave (4) was an expanded flat lasting 14 sessions. There is alternation and perfect proportion between intermediate waves (4) and (2).

An Elliott channel is added in beige about primary wave 3. The upper edge is providing resistance and initiating pullbacks, which normally occur within an upwards trend.

Primary wave 1 looks extended. The second target for primary wave 3 expects it to also be extended.

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

HOURLY CHART

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Intermediate wave (5) may subdivide as either an impulse or an ending diagonal. An impulse is much more common, so it is much more likely. An impulse will be expected until and unless overlapping suggests a diagonal should be considered.

Minor wave 1 within intermediate wave (5) may be complete at the last high. The current pullback may be minor wave 2.

Minor wave 2 may be complete as a double zigzag, ending a little short of the 0.618 Fibonacci ratio of minor wave 1.

A target is calculated for minor wave 3. This target does not fit with the first target on the daily chart, but it does fit with the second target zone on the daily chart.

Minor wave 3 is expected to be extended.

Minute wave ii may not move beyond the start of minute wave i below 3,805.59.

If this first hourly chart is invalidated, then the alternate below may be used.

ALTERNATE HOURLY CHART

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It is possible that intermediate wave (5) may be over by moving the degree of labelling within it up one degree, which means the primary wave 3 in its entirety may be over. However, this wave count sees primary wave 3 shorter than primary wave 1 by 655.27 points. This does not violate any Elliott wave rules, but it is not common for the S&P to exhibit third waves that are shorter than their counterpart first waves; normally, this market exhibits extended third waves.

The probability of this alternate wave count remains low.

Downwards movement from the last high will not fit as a diagonal or a complete impulse; there is too much overlapping for an impulse. Downwards movement will fit as a double zigzag, which may be intermediate wave (A) within primary wave 4.

When A waves subdivide as threes, then a flat or triangle is indicated. Intermediate wave (B) did not reach the minimum required 90% length of intermediate wave (A), so primary wave 4 may not be subdividing as a flat. A triangle is the last possible structure.

Primary wave 4 may not be subdividing as a double or triple zigzag, or double or triple combination, because the first structure in a multiple ending at the low labelled intermediate wave (A) will not subdivide as a single corrective structure. The maximum number of corrections within a multiple is three; to label multiples within multiples violates this Elliott wave rule.

If primary wave 4 is a regular contracting triangle, then intermediate wave (C) may not move beyond the end of intermediate wave (A) below 3,805.59.

If primary wave 4 is a regular expanding triangle, then intermediate wave (C) must end below the end of intermediate wave (A) at 3,805.59.

Primary wave 4 may not move into primary wave 1 price territory below 3,580.84.

ALTERNATE WAVE COUNT

WEEKLY CHART

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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

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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 targets for a third wave up to end is the same.

TECHNICAL ANALYSIS

WEEKLY CHART

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

ADX indicates the trend is extreme because the ADX line is above both DX lines, but there is a long way to go before ADX reaches 45 and very extreme. This market has a strong bullish bias and extreme conditions can persist for reasonable periods of time while price travels a considerable distance.

A further decline in volume last week is not of a concern in current market conditions. For years now this market has risen sustainably on light and declining volume, so it may yet be sustained for some more years. Eventually, when a bear market arrives, thin volume below may leave little support, which is concerning, but at this time there is no technical evidence of a bear market being imminent. The bull market continues.

DAILY CHART

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

The series of higher highs and higher lows from the low of the 30th of October continues.

ADX is a lagging indicator. The many small pullbacks in this trend are causing it to lag in identifying an obvious upwards trend.

The breakaway gap may provide support for smaller pullbacks at this time. The lower edge of the gap is at 3,872.42. This gap still remains open. After a break above resistance on 5th February, price has now curved down for a small pullback to test support. So far this looks like typical price behaviour. Support may hold and price would typically turn up from here.

There is plenty of room for this upwards trend to continue before conditions become extreme.

An 80% down day supports the alternate Elliott wave count. Next support is at 3,775. The last swing low on the 29th of January remains intact; while this has not been breached, an upwards trend may be assumed to remain in place as a series of higher highs and higher lows remains. Pullbacks are a normal part of an upwards trend.

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 12th of February. This is a strong bullish signal and supports the main Elliott wave count.

Large caps all time high: 3,950.43 on February 16, 2021.

Mid caps all time high: 2,581.02 on February 24, 2021.

Small caps all time high: 1,325.66 on February 24, 2021.

Last week price has moved higher although the week closed red and the AD line has moved lower. This divergence is bearish for the short term, but it is weak.

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. The AD line has made a new low below the low of two sessions prior, but price has not. This divergence is bearish and supports the alternate 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 although the week has closed red. Inverted VIX has moved lower. This divergence is bearish for the short term, but it is weak.

Comparing VIX and VVIX: Short-term bearish divergence noted last week has now been followed by an upwards week, so it may have failed or may yet be followed by some downwards movement in the short term. This week VIX has moved higher, but VVIX has moved slightly lower. This short-term divergence is bullish for 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 both inverted VIX and price have moved lower. Inverted VIX has made a new low below the low of two sessions prior, but price has not. This divergence is bearish and supports the alternate hourly Elliott wave count.

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 remains bearish for the mid term. Today both VIX and VVIX have 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 @ 06:13 p.m. ET.

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New updates to this analysis are in bold.