An inside day closes red leaving all four Elliott wave counts essentially the same.

Summary: There is a cluster of bearish signals from the AD line and short-term weak triple bearish divergence between price and RSI. Closure of the last gap with a new low below 4,369.87 would add confidence that a high is in place. Four Elliott wave counts are considered in order of probability:

1 – A minor degree fourth wave may continue lower and / or sideways for another two to five weeks. Support may be found about 4,235 or 4,137.65.

2 – The pullback is over and the upwards trend resumes to the next target at 4,922 (first alternate).

3 – An intermediate degree fourth wave on the weekly chart may move suddenly lower to find support about the lower edge of the Elliott channel, which sits about 3,956 (second alternate).

4 – A primary degree second wave may have just begun. It may meet the technical definition of a bear market in that it may correct to 20% or more of market value at its eventual low. Also, it may find support about 3,044 and may not make a new low below 2,191.86 (third alternate).

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. There is only fifteen days of divergence at this stage.

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.

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

Within intermediate wave (3), minor waves 1, 2 and 3 may be complete. Minor wave 3 may be shorter than minor wave 1 by 70.64 points. This limits minor wave 5 to no longer than equality in length with minor wave 3. Minor wave 4 may not move into minor wave 1 price territory below 3,950.43.

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.

DAILY CHART

Click chart to enlarge.

Minor wave 2 subdivided as a double zigzag and lasted 12 sessions. Minor wave 4 may last about 3 to 6 weeks and may most likely subdivide as a flat, triangle or combination, which are often longer lasting than zigzags. Flats, triangles or combinations are choppy sideways movements with swings from resistance to support and back again. Price does not move in a straight line during these swings, so it will not be possible to know which of several Elliott wave structures minor wave 4 has subdivided as until it may be over.

The most likely structure for minor wave 4 at this stage looks like an expanded flat, which is a very common structure. Minute wave c within minor wave 4 would be likely to make at least a slight new low below the end of minute wave a at 4,233.13 to avoid a truncation and a very rare running flat. A target for minute wave c is now calculated at 4,163.

Draw an Elliott channel. 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. Minor wave 4 may find support about the lower edge of this channel; but the target calculated now expects a small overshoot.

Minor wave 4 may not move into minor wave 1 price territory below 3,950.43.

If minor wave 3 is over, then it would be 70.64 points shorter than minor wave 1. This limits minor wave 5 to no longer than equality in length with minor wave 3, so that the core Elliott rule stating a third wave may never be the shortest is met.

HOURLY CHART

Click chart to enlarge.

Minor wave 4 may be unfolding sideways as an expanded flat.

Within minor wave 4: Minute wave a subdivides as a double zigzag, and minute wave b also subdivides as a double zigzag and is a 1.18 length of minute wave a, which is within the common range of up to 1.38 and indicates an expanded flat.

If minute wave b continues higher, then it may end within the common range of 1 to 1.38 times the length of minute wave a, which is from 4,393.68 to 4,454.69. It is still possible today that minute wave b may continue higher.

Minute wave c would be very likely to make at least a slight new low below the end of minute wave a at 4,233.13 to avoid a truncation and a very rare running flat.

Minor wave 4 may not move into minor wave 1 price territory below 3,950.43.

It must be repeated that analysis during corrections is particularly difficult as multiple structures are possible. Focus should not be on identifying each smaller movement within the correction but on identifying when the correction may be complete and an upwards breakout may be expected.

FIRST ALTERNATE

DAILY CHART

Click chart to enlarge.

This alternate wave count has a lower probability than the main Elliott wave count.

If the degree of labelling within minor wave 3 is moved down one degree, then only minute wave i within minor wave 3 may be complete.

Minute wave ii within minor wave 3 may be over at the last low. A third wave up at minute, minor and intermediate degree may have just begun.

Targets are calculated for minor wave 3 and intermediate wave (3) that expect common Fibonacci ratios.

No second wave correction within minute wave iii may move beyond its start below 4,233.13.

HOURLY CHART

Click chart to enlarge.

Within minute wave iii: Minuette wave (i) may be over at the last high, and minuette wave (ii) may continue lower tomorrow to end about either the 0.382 or 0.618 Fibonacci ratio but may not move beyond the start of minuette wave (i) below 4,233.13.

SECOND ALTERNATE

WEEKLY CHART

Click chart to enlarge.

This weekly chart is again considered.

It is possible that intermediate wave (3) is over at the last high. However, it may also continue a little higher.

Intermediate wave (4) may last from three to several weeks and may find support about the lower edge of the Elliott channel. Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.

Intermediate wave (3) is shorter than intermediate wave (1) by 182.97 points. It is unusual for third waves to be shorter than first waves for the S&P, particularly of a higher degree such as intermediate. This reduces the probability of this alternate wave count.

This alternate wave count is considered because the bearish divergence between price and the AD line is still strong.

THIRD ALTERNATE

WEEKLY CHART

Click chart to enlarge.

This second alternate weekly chart is considered because it is technically possible. However, primary wave 2 may correct to the 0.618 Fibonacci ratio, which would be a 31% reduction in market value and meet the technical definition of a bear market. This is possible but has a very low probability as there is only 15 days of bearish divergence between price and the AD line. Within the last (almost) 100 years, only three bear markets have occurred following less than 4 months bearish divergence between price and the AD line.

Primary wave 2 may last one to a few months. It 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.

Another Bearish Engulfing candlestick pattern has not been followed by any further downwards movement. It is followed by a bullish candlestick this week.

Short-term bearish divergence between price and RSI remains, but it is weak. It may disappear, or it may be followed by a short-term pullback.

DAILY CHART

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

Triple bearish divergence between price and RSI is weak and short term. Weaker divergence, which is short term, suggests a more shallow and short-term pullback or consolidation. This supports the main Elliott wave count.

Two back to back 80% up days are now complete off the last low, although they have not come after a 90% or two back to back 80% down days, so this is not enough for confidence in a sustainable low.

The last swing low on the 18th of June though did come with one 80% down day followed by one 80% up day.

However, on the 18th of June there was not a reasonable cluster of bearish signals from the AD line, short-term bearish divergence between price and RSI, nor a reasonable cluster of bearish signals from inverted VIX. The bearish signals are stronger at this last high, and there is now triple bearish divergence between price and RSI. A consolidation or pullback may continue here to relieve this bearishness and set up for the next advance.

A target from the breakaway gap is at 4,518.04. The gap remains open, so the target remains valid. If the gap is closed, then it would be renamed an exhaustion gap, which would be a bearish signal.

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. There is now over one and a half months of bearish divergence between the OCO AD line and price. This supports the first alternate Elliott wave count but not necessarily the second alternate Elliott wave count.

Large caps all time high: 4,422.73 on Jul 26, 2021.

Mid caps all time high: 2,780.08 on May 10, 2021.

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

With just over 2 months of weakness in small and mid caps, some pullback or consolidation may result sooner. The Elliott wave count and supporting technical analysis suggest it may have begun.

Last week price makes a new all time high, but the AD line does not. This adds to the small cluster of bearish divergence and supports the main Elliott wave count.

Last week it is again large caps which are strongest. This 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.

Price has completed an inside day. The AD line has moved higher; the AD line has made a new short-term high above the high two sessions prior, but price has not. This divergence is bullish, but it is weak and very short term. If price makes a new all time high, then bearish divergence would remain and is stronger.

The last all time high for the AD line occurred just 15 days prior to the last all time high in price. With only three weeks of bearish divergence, probability favours a short-term pullback or consolidation and not a fully fledged bear market. This suggests the main Elliott wave count or first alternate Elliott wave count may be preferred.

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. It may support the second alternate Elliott wave count.

Last week price makes a new all time high, but inverted VIX does not. There is new short-term bearish divergence along with mid and long-term bearish divergence. This supports the main Elliott wave count.

Comparing VIX and VVIX at the weekly chart level:

Both have moved lower. 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.

Price has completed an inside day while inverted VIX has moved higher. There is no new short-term divergence.  A cluster of bearish divergence remains.

Comparing VIX and VVIX at the daily chart level:

Both VIX and VVIX have moved lower today. 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 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 @ 06:11 p.m. ET.

—

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.

—

New updates to this analysis are in bold.

—