An outside day completes a candlestick pattern, which has support from VIX and volume today. A new alternate Elliott wave count is considered.

Summary: The primary trend remains up. Pullbacks are a normal and to be expected part of a bull market.

New targets for the Elliott wave count: short term 4,488, mid term 4,922, and long term 5,468.

A new low now below 4,257.16 would indicate the main Elliott wave count should be discarded in favour of a new alternate. At that stage, a pullback may end about 4,091. It is also possible that the pullback may not be as deep and a choppy consolidation may move sideways for about two or three weeks.

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

Monthly charts are last updated here with video here.

MAIN ELLIOTT WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave V may last from one to several years. So far it is in its sixteenth 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 approaching an end.

Minor waves 1 and 2 within intermediate wave (3) may be complete. A target is calculated for intermediate wave (3) that expects a common Fibonacci ratio to intermediate wave (1).

Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.

Within intermediate wave (3), minor waves 1 and 2 may be complete. A target is calculated for minor wave 3 to reach a common Fibonacci ratio to minor wave 1.

A best fit channel is drawn about cycle wave V. Draw the first trend line from the end of intermediate wave (1) to the end of minute wave iii within minor wave 3, then place a parallel copy on the end of intermediate wave (2). The channel may need to be redrawn as price continues higher. The channel may show where price may find resistance and support along the way up.

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). This labelling is changed from last analysis, and it fits with MACD.

Within minor wave 3: Minute waves i, ii, iii and iv may all be complete, and minute wave v may be extending.

Within minute wave v: Minuette waves (i) and (ii) may be complete, and minuette wave (iii) exhibits an increased slope.

Minuette wave (iv), when it arrives, may not move into minuette wave (i) price territory below 4,257.16.

Minuette wave (ii) lasted 3 sessions and saw price fall 2.18% of market value. Minuette wave (iv), when it arrives, may last from 3 sessions to about a week or so and would most likely be a shallow consolidation.

Draw an Elliott channel about minor wave 3 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. Along the way up, the lower edge of this channel may provide support. Minute wave v may end about the upper edge.

HOURLY CHART

Click chart to enlarge.

The hourly chart focusses on minuette wave (iii). This is relabelled today.

Draw an Elliott channel about minuette wave (iii) as shown. The lower edge may provide support for pullbacks along the way up.

The pullback today may have been subminuette wave iv. There is no Fibonacci ratio between subminuette waves i and iii. 

When it arrives, minuette wave (iv) may not move into minuette wave (i) price territory.

ALTERNATE DAILY CHART

Click chart to enlarge.

It is possible that minor wave 1 was more brief, ending on the 12th of October 2020 (this is the high labelled minute wave i within minor wave 1 on the weekly chart above). Minor wave 3 may have been a long extension ending at the high today. There is no Fibonacci ratio between minor waves 1 and 3.

It is possible that minor wave 4 may have begun today. Minor wave 2 lasted 14 sessions and was a sharp pullback, effecting a 8.9% reduction in market value and a 93% correction of minor wave 1. Given the guideline of alternation, minor wave 4 may be shallow and time consuming. The 0.236 Fibonacci ratio at 4,091.55 may be a reasonable target.

Minor wave 4 may find support at the lower edge of the blue Elliott channel.

An Elliott channel is also drawn in pink about minor wave 3. Minor wave 4 may breach the channel that contains minor wave 3.

Minor wave 4 may not move into minor wave 1 price territory below 3,549.85.

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 4,164.40 on the 18th of June. 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.

On Balance Volume and ADX are bullish.

RSI is now just overbought again, but this indicator may reach extremely overbought and remain there for a long time when this market has a strong bullish trend.

DAILY CHART

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

The measuring gap is closed today, so it is renamed an exhaustion gap.

Supporting the main Elliott wave count:

• ADX
• On Balance Volume
• MACD
• A lack of bearish divergence between price and the AD line

Supporting the alternate Elliott wave count:

• A Hanging Man bearish reversal pattern
• A possible 80% down day (breadth data is unavailable for this session; it will be available tomorrow)
• An exhaustion gap
• Weakness in small caps; this last rise was led by large caps
• Mid-term bearish divergence between price and inverted VIX
• Short-term bearish divergence between price and inverted VIX
• Short-term bearish divergence from Friday between VIX and VVIX

Although there are more points numerically supporting the alternate wave count, not each point should be given equal weight. Reasonable weight should be given to a lack of divergence between price and the AD line, and little weight should be given to bearish divergence between price and VIX and between VIX and VVIX.

Finally, the bullish implications of a Hanging Man reversal pattern mean that it requires bearish confirmation in the following candlestick. If tomorrow provides this bearish confirmation, then probability may shift towards the alternate 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 8th of June. With zero bearish divergence at the last high, any pullbacks here would most likely be short term in nature. Pullbacks in a relatively healthy bull market may be used as buying opportunities.

Large caps all time high: 4,356.46 on Jul 06, 2021.

Mid caps all time high: 2,778.84 on April 29, 2021.

Small caps all time high: 1,417.45 on June 8, 2021.

This rise is led by large caps, which is a feature of an aged bull market. This fits the Elliott wave count that sees a fifth wave to end a third wave completing. This may continue for some time before a larger pullback arrives.

Last week both price and the AD line have made new all time highs, negating the bearish divergence noted in the prior week.

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.

Large caps are leading. This is a feature of an aged bull market, which may fit the Elliott wave count that sees a fifth wave nearing an end. This weakness may continue for a while before a larger correction arrives.

Today both price and the AD line have moved lower. Neither have made new short-term lows. There is no new divergence.

Before this upwards trend ends and a larger pullback arrives, the AD line may again provide bearish signals. With no bearish signals at this time, any pullbacks which may develop here may most likely be short term in nature.

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.

Last week both price and inverted VIX have moved higher. Mid-term bearish divergence remains.

Comparing VIX and VVIX at the weekly chart level:

Last week VVIX has moved slightly higher while VIX has moved lower. This divergence is bearish for price, but it is weak and 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 both price and inverted VIX have moved lower. Inverted VIX has made a new low below the 29th of June, but price has not. This divergence is bearish for the short term.

Comparing VIX and VVIX at the daily chart level:

Both VIX and VVIX have moved higher. There is no new short-term divergence.

On Friday VIX made a new short-term low below the 25th of June, but VVIX did not. This divergence is bearish for price for the short term, but it is reasonably weak.

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 @ 08:33 p.m. ET.

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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.

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New updates to this analysis are in bold.

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