S&P 500: Elliott Wave and Technical Analysis | Charts – May 10, 2021
Both Elliott wave counts remain valid.
Summary: The alternate Elliott wave count now allows for a small fourth wave to continue lower tomorrow to find support at the lower edge of a channel, or if the channel is overshot to end about 4,092 or 4,079.24. The next target for the next wave up is at 4,900.
The main Elliott wave count expects upwards movement tomorrow and has a short-term target at 4,276 and then the next mid-term targets at either 4,464 or 4,922. About one of these targets a multi-week pullback may begin.
The biggest picture, Grand Super Cycle analysis, is here.
Monthly charts are last updated here with video here.
MAIN WAVE COUNT
WEEKLY CHART
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Cycle wave V may last from one to several years. So far it is in its fourteenth 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.
A longer divergence between price and the AD line would be expected towards the end of Grand Super Cycle wave I.
It is possible that cycle wave V may continue until 2029, if the 2020s mirror the 1920s (although the alternate weekly wave count fits this expectation better).
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.
An acceleration channel is drawn about cycle wave V. Draw the first trend line from the end of primary wave 1 to the last high, then place a parallel copy on the end of primary wave 2. Keep redrawing the channel as price continues higher. When primary wave 3 is complete, then this channel would be drawn using Elliott’s first technique and may show were primary wave 4 may find support.
DAILY CHART
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Within primary wave 3: Intermediate wave (1) may be complete, intermediate wave (2) may also be complete as a double zigzag, and intermediate wave (3) may now be underway and may have passed its middle.
Minor wave 3 within intermediate wave (3) may be nearing an end. Minute wave iv within minor wave 3 may not move into minute wave i price territory below 3,981.83.
Targets are calculated for intermediate wave (3) and primary wave 3. The first target for intermediate wave (3) would work with the first target for primary wave 3, and the second target for intermediate wave (3) would work with the second target for primary wave 3.
As price approaches the next target at 4,464, if the structure may be complete, then intermediate wave (3) may end there. But if price keeps rising through the first target or the structure is incomplete, then the next target would be used.
HOURLY CHART
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Minute wave v may have begun.
Today labelling within minute wave v is changed after a strong downwards end to this last session. Within minute wave v: minuette wave (i) may be complete, and minuette wave (ii) may be a complete zigzag or may continue to move lower tomorrow. Minuette wave (ii) may not move beyond the start of minuette wave (i) below 4,128.59.
This wave count sees the upwards movement from the low labelled minute wave iv as a complete five wave impulse. This part of the wave count today looks forced; the proportions between subminuette waves ii and iv are poor and do not give this part of the wave count the right look. This upwards movement may fit better as a correction, which would fit the alternate wave count better today.
When minor wave 4 arrives, then it may last from one to a few weeks.
ALTERNATE WAVE COUNT
WEEKLY CHART
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The degree of labelling within cycle wave V is moved down one degree from the main wave count; primary wave 1 may be incomplete. This gives a much more bullish wave count, expecting a much longer duration for cycle wave V which has not yet passed its middle strongest portion.
Within primary wave 1: Intermediate waves (1) and (2) may be complete, and intermediate wave (3) may now be nearing an end.
Within intermediate wave (3): Minor waves 1 and 2 may be complete, and minor wave 3 may be nearing an end.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.
When primary wave 1 may be complete, then a multi-month pullback or consolidation may unfold for primary wave 2. It is possible that primary wave 2 may meet the technical definition of a bear market; it may correct to 20% or more of market value.
Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.
DAILY CHART
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The daily chart focusses on minor wave 3 within intermediate wave (3).
Intermediate wave (3) may be extending. Third waves are most commonly extended for the S&P500, so this wave count follows a common tendency. A target is calculated for minor wave 3, which is also expected to be extending.
Minute wave iv within minor wave 3 may not move into minute wave i price territory below 3,983.87. Minute wave iv may continue lower this week as an expanded flat.
HOURLY CHART
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Minute wave iv may be continuing lower as an expanded flat. Minuette wave (b) within the expanded flat is a 1.21 length of minuette wave (a), which is within the most common range of 1 to 1.38.
A target is calculated for minuette wave (c) to reach a common Fibonacci ratio to minuette wave (a). This target expects minute wave iv to slightly overshoot the lower edge of the pink Elliott channel; in the first instance, look for the strong possibility that price may find support there and the target may not be reached.
If price continues lower below the channel and through the first target at 4,092, then the next target for minute wave iv may be the 0.382 Fibonacci ratio at 4,079.24.
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.
This chart has the look of a sustainable bull market in a relatively early stage; there is as yet no evidence that a larger correction should begin here. Although RSI has now reached overbought, this market has a strong bullish bias and RSI can move deeply overbought and remain there for years prior to the bull market ending.
Last week price closes to new all time highs. This is bullish and supports both Elliott wave counts. The lower wick on this weekly candlestick suggests 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.
Pullbacks are a normal and to be expected part of a bullish trend.
A strong downwards session with a close almost at the low for the session is bearish. Downwards movement tomorrow may be very likely. If price does continue lower for another one to very few sessions, then it may resolve double bearish divergence between price and RSI. Look for strong support about 4,100. At this stage, pullbacks may most likely be 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 6th of May (data for the 7th of May is not yet available; it may too show a new all time high). This supports the Elliott wave counts.
Large caps all time high: 4,238.04 on May 7, 2021.
Mid caps all time high: 2,778.84 on April 29, 2021.
Small caps all time high: 1,399.31 on March 12, 2021.
The last new high is found in large caps only. Small caps have been lagging since the 15th of March. Mid caps have been lagging since the 29th of April. This lag from small and mid caps is not precise in terms of timing when a pullback may begin, but it is an early warning sign of some developing weakness. It would be expected that as third waves come to an end some weakness should begin to develop; this situation may fit for either Elliott wave counts.
Last week again price and the AD line both make new all time highs. Upwards movement has support from rising market breadth. This is bullish and supports both Elliott wave counts.
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 lower today. Neither have made new short-term lows. There is no new 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. 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.
Following two weeks of short-term bearish divergence, last week price has moved higher. This bearish divergence is considered to have failed for the short term.
Last week both price and inverted VIX have moved higher. Price has made new all time highs, but inverted VIX has failed to make new short, mid or long-term highs. There is again all of short, mid and long-term bearish divergence.
Comparing VIX and VVIX at the weekly chart level:
Last week both VIX and VVIX have moved lower. 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.
Bearish divergence on Friday has now been followed by a downwards session.
Today both price and inverted VIX have moved lower. Inverted VIX has made a small new low below the prior low of the 4th of May, but price has not; this divergence is bearish. Two instances now of short-term bearish divergence now support the alternate Elliott wave count.
Comparing VIX and VVIX at the daily chart level:
Bearish divergence noted on Friday has now been followed by a downwards session.
Today both VIX and VVIX have moved higher, and both have made new short-term swing highs. 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.
Most recently, on 7th May 2021 both DJIA and DJT have made new all time highs. An ongoing bull market is again confirmed by Dow Theory.
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 @ 07:12 p.m. ET.
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New updates to this analysis are in bold.