Upwards movement has continued this week as the main Elliott wave count has expected.

Summary: The trend is up. The next target for the next wave up is at 4,900.

For the very short term, a little downwards movement on Monday may end about 4,110.82.

An alternate Elliott wave count allows for more sideways movement to end slightly below 4,061.41, and close to 4,056.88. It has a lower probability.

*Edit: 4,061 was incorrectly given earlier as 4,601.

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 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. Either March or October 2029 may be likely months for the bull market to end.

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.

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.

Primary wave 1 within cycle wave V may be incomplete. This gives a very bullish wave count, expecting a long 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.

An acceleration channel is drawn about cycle wave V. Draw the first trend line from the end of intermediate wave (1) to the last high, then place a parallel copy on the end of intermediate wave (2). Keep redrawing the channel as price continues higher. When primary wave 1 is complete, then this channel would be drawn using Elliott’s first technique. The channel may then be used to provide confidence that primary wave 1 may be over and primary wave 2 may have arrived; when the channel is breached by downwards movement it would indicate a trend change.

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

Click chart to enlarge.

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.

If it continues lower, then minute wave iv within minor wave 3 may not move into minute wave i price territory below 3,983.87. Minute wave iv may have ended as an expanded flat.

Now that minute wave iv may be complete, as it overshot a channel drawn using Elliott’s first technique, redraw the channel now using Elliott’s second technique. Draw the first trend line from the ends of minute waves ii to iv, then place a parallel copy on the end of minute wave iii. This redrawn channel may show where minute wave v may end, either mid way within the channel or about the upper edge. It may then be used to confirm a subsequent trend change, when it is breached by downwards movement.

The channel is overshot, which for this market is acceptable, and price has today moved back within the channel. This market does not always sit neatly within channels as its impulses come to an end. It is possible that as minor wave 3 ends channels may need to be redrawn.

HOURLY CHART

Click chart to enlarge.

Minute wave iv may be a complete expanded flat.

The target for minor wave 3 remains the same.

Minute wave v is expected to be a long extension. Minuette wave (i) within minute wave v may be incomplete and may be subdividing as an impulse or leading diagonal.

Within minuette wave (i): Subminuette waves i and ii may be complete, and subminuette wave iii may only subdivide as an impulse.

Within subminuette wave iii: Micro wave 1 may have ended at Friday’s high, and micro wave 2 may continue a little lower on Monday to end closer to the 0.618 Fibonacci ratio of micro wave 1 at 4,110.82.  This may be where price may find support about the lower edge of the pink Elliott channel.

Micro wave 2 may not move beyond the start of micro wave 1 below 4,061.41.

ALTERNATE WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

If this pullback is at intermediate degree, then intermediate waves (1), (2) and (3) may all be complete. Intermediate wave (3) is considerably shorter than intermediate wave (1). The S&P500 has a strong bullish bias and a tendency to exhibit extended third waves. Any wave count which expects a third wave is shorter than its counterpart first wave must necessarily have a low probability.

Intermediate wave (4) may be incomplete. It may not move into intermediate wave (1) price territory below 2,191.86.

The channel drawn about primary wave 1 is drawn using Elliott’s first technical for an impulse. Draw the first trend line from the ends of intermediate waves (1) to (3), then place a parallel copy on the end of intermediate wave (2). If intermediate wave (4) is deep, then it may find support about the lower edge of this channel.

DAILY CHART

Click chart to enlarge.

Intermediate wave (4) may continue sideways as a double flat. The first flat may be complete, an expanded flat labelled minor wave W. The double may be joined by a three in the opposite direction, a zigzag labelled minor wave X. The second flat may be incomplete, labelled minor wave Y.

Minor wave Y may be subdividing as a regular flat, providing alternation with the expanded flat of minor wave W.

The probability of this alternate Elliott wave count is further reduced. Double flats are uncommon structures. I have only ever seen a very few.

If the main Elliott wave count is invalidated with a new low below 3,983.87, then this alternate may be used.

A new all time high may see this alternate Elliott wave count discarded.

HOURLY CHART

Click chart to enlarge.

If intermediate wave (4) is continuing sideways as a double flat, then the second flat labelled minor wave Y may now be incomplete.

Within the second flat of minor wave Y: Minute wave a may be complete, and minute wave b is a 1.046 length of minute wave a, which is just short of the 1.05 length required for an expanded flat, which indicates minor wave Y may be a regular flat.

Minute wave c must subdivide as a motive structure, most likely an impulse. Minuette wave (ii) within minute wave c may not move beyond the start of minuette wave (i) above 4,188.72.

If either or both the AD line and On Balance Volume provide bullish signals, then this alternate wave count may be discarded.

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 very recently 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.

Now two long lower wicks on two weekly candlesticks are bullish for the short term. 

The bearish signal from On Balance Volume is not as clear as it could be. If On Balance Volume turns up next week, then the signal would be negated and the trend line would need to be redrawn. This week more weight will be given to candlestick wicks than On Balance Volume.

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.

One strong signal of a sustainable low in place, after some decline in price, is a 90% down day or two back to back 80% down days followed within 3 or 4 sessions by a 90% up day or two back to back 80% up days. Currently, this description is not met. An 80% down day followed within a few sessions by an 80% up day is bullish, but it is not strong enough to have confidence in a sustainable low.

The decline in price down to the 12th of May may have been sufficient to resolve the double bearish divergence between price and RSI.

A bullish Hammer pattern coming after a decline on a strong downwards day is reasonably bullish. This supports the main Elliott wave count.

On Balance Volume has turned down from resistance. It remains bearish and supports the alternate Elliott wave count.

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 7th of May. 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.

Price this week has moved sideways and the AD line has moved higher.

Upwards movement within this week has support from rising market breadth. This is bullish and supports the main Elliott wave count.

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. There is no new divergence.

There is now a cluster of bullish divergence in recent days that 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. 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 price has moved sideways and inverted VIX has moved lower. This is bearish for the short term.

Comparing VIX and VVIX at the weekly chart level:

This week 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.

Both price and inverted VIX have moved higher on Friday. Price has made a new short-term swing high above the prior high of the 14th of May, but inverted VIX has not. This divergence is bearish for the short term. This supports the alternate Elliott wave count.

Comparing VIX and VVIX at the daily chart level:

Both VIX and VVIX have moved lower. There is no new short-term divergence. Mid-term bearish divergence noted on the chart remains and supports the alternate 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.

Most recently, on 10th 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 @ 07:30 p.m. ET.

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1. Always trade with stops.

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New updates to this analysis are in bold.