An upwards day exhibits some weakness.

The main Elliott wave count expects a small pullback. An alternate Elliott wave count looks at the possibility it may be deeper.

Summary: The main wave count (daily and weekly) expects the low of the 30th of October to not be breached for many months. However, the alternate wave count now diverges and allows for a deeper pullback to unfold here. There is more support from classic analysis for the main than the alternate wave count.

For the short term, the pullback may continue lower tomorrow to end about 3,930.  An alternate hourly chart considers the pullback may be deeper, ending closer to 3,823.

The next target for the upwards trend is at 4,464 and thereafter at 4,606. About this target another multi-week pullback or consolidation may develop.

An alternate wave count at the weekly chart level has a slightly lower 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 twelfth 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

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

Intermediate wave (1) within primary wave 3 may be complete.

Intermediate wave (2) may also be complete as a triple zigzag.

Intermediate wave (3) within primary wave 3 may now have begun.

Minor wave 1 and 2 within intermediate wave (3) may now be complete. If minor wave 2 continues sideways and lower as a flat correction, then it may not move beyond the start of minor wave 1 below 3,723.34.

The beige Elliott channel is drawn about intermediate wave (1) using Elliott’s first technique: Draw the first trend line from the ends of minor waves 1 to 3, then place a parallel copy on the end of minor wave 2. The upper edge has initiated multiple pullbacks, so it may again be an important line of resistance in the future.

The next upwards wave for this wave count is expected to be a third wave at minor, intermediate and primary degree. An increase in upwards momentum may be expected.

HOURLY CHART

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Minor wave 1 may be complete, falling a little short of the upper edge of the beige Elliott channel copied over from the daily chart.

Minor wave 2 may be a complete double zigzag. A breach of the best fit channel about minor wave 2 adds a little confidence to this view.

Minute wave i within minor wave 3 may be complete. Minute wave ii within minor wave 3 may move lower tomorrow to end closer to the 0.382 Fibonacci ratio at 3,930.56. Minute wave ii may not move beyond the start of minute wave i below 3,853.50.

ALTERNATE HOURLY CHART

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It remains possible that minor wave 2 may continue sideways and lower as a flat correction.

Both minute waves a and b within a flat correction must subdivide as corrective structures. Minute wave b must retrace a minimum 90% of minute wave a. These conditions are now met.

Minute wave b within a flat correction would most likely end within the most common range from 1 to 1.38 times the length of minute wave a, from 3,983.87 to 4,033.41. If minute wave b continues higher, then it may end somewhere within this range.

If minute wave b is over at Friday’s high, then the flat would be a regular flat.

Minute wave c within a flat would be extremely likely to move at least slightly below the end of minute wave a at 3,853.50 to avoid a truncation.

Minor wave 2 may not move beyond the start of minor wave 1 below 3,723.34.

ALTERNATE WAVE COUNT

WEEKLY CHART

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This wave count sees subdivisions in the same way as the main wave count, but the degree of labelling is different. The implications are now important. It is possible that primary wave 1 was over at the last high and a deeper and longer lasting pullback for primary wave 2 may have arrived. Primary wave 2 may be expected to last weeks to months.

While for the short to mid term this alternate wave count is now more bearish than the main wave count, it remains more bullish than the main weekly wave count for the long term. It expects that cycle wave V may last many more years than the main weekly chart.

Within primary wave 1: Intermediate wave (3) is shorter than intermediate wave (1), and intermediate wave (5) may be complete and shorter than intermediate wave (3). The S&P has a strong tendency for its third waves to be long extensions and for this wave count the lack of an extended third wave for intermediate wave (3) reduces the probability.

This wave count has a low probability for this market in Elliott wave terms. It also lacks support from classic technical analysis.

Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

DAILY CHART

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Primary wave 1 may now be complete. Primary wave 2 may have just begun.

This chart is now drawn on an arithmetic scale, so that the Fibonacci re-tracements are accurate. Primary wave 2 may find support about either the 0.382 or 0.618 Fibonacci ratios.

A breach of the Elliott channel drawn about primary wave 1 would provide confidence in this wave count.

Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

TECHNICAL ANALYSIS

WEEKLY CHART

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

A series of higher highs and higher lows off the low of March 2020 continues. The last short-term swing low is now at 3,723.34. While this remains intact, the dominant view should be of an upwards trend. There is a long way for this trend to run before conditions may become extreme.

For the short term, a strong close to the week near the weekly high, and a bullish long lower wick, both suggest more upwards movement this week.

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.

The last swing low is the 4th of March at 3,723.34. While this remains intact, the upwards trend may be assumed to continue. Pullbacks are a normal and to be expected part of a bullish trend. Another may now be complete.

A doji candlestick for Monday is neither bullish nor bearish. A decline in volume in current market conditions is also not especially bearish. 

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 15th of March. This supports the main Elliott wave count.

Large caps all time high: 3,983.87 on March 17, 2021.

Mid caps all time high: 2,682.94 on March 15, 2021.

Small caps all time high: 1,399.31 on March 12, 2021.

Last week price has moved lower (although the candlestick has closed green), but the AD line has moved higher. This divergence is bullish for the short term.

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 price has moved slightly higher, but the AD line has moved lower. This is bearish for the short term and may offer some support to either the main or alternate hourly charts for 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 lower with a lower low and a lower high, although the week ended strongly and the candlestick closed green. Inverted VIX has moved higher. This divergence is bullish for the short term and supports the view that the last pullback may now be complete.

Comparing VIX and VVIX at the weekly chart level:

Both VIX and VVIX have moved lower last week. There is no new 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.

On Friday price and inverted VIX have both moved higher. Inverted VIX has matched the prior high of the 23rd of March, but price has not. There is a very weak bullish divergence.

Comparing VIX and VVIX at the daily chart level:

Today price has moved higher, but inverted VIX has moved lower. This divergence is bearish for the short term and may offer some support for either the main or alternate hourly charts for the main Elliott wave count.

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 @ 05:50 p.m. ET.

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New updates to this analysis are in bold.