Today both the AD line and VIX suggest the direction for price tomorrow.

Summary: For the very short term, expect some downwards movement for tomorrow, at least. This may be a small B wave.

For the short to mid term, primary wave 2 may not be over. It may continue lower as a double zigzag or sideways as a flat or double combination.

Primary wave 2 may find support about 3,055 (most likely) or 2,725. Thereafter, the upwards trend to new all time highs may continue.

The second wave count considers the possibility that a once in multi-generations trend change may have occurred. Some confidence in this wave count would come with invalidation of the first wave count below 2,191.86.

At this stage, a new high above 3,588.11 would invalidate the second very bearish Elliott wave count, leaving only a bullish Elliott wave count.

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

Monthly charts are here, with video here.

ELLIOTT WAVE COUNTS

FIRST WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave V may last from one to several years. So far it has lasted 6 months.

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

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 target at 4,034 is provisional, so it may change.

DAILY CHART

Click chart to enlarge.

Primary wave 1 may be over and primary wave 2 may be underway.

Primary wave 2 may be a multi-week pullback or consolidation. Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

For the S&P500, the first multi-week second wave correction within a new trend is not always very deep. Two examples from prior bull markets: after the bear market of October 1987, the first multi-week second wave in the following bull market ended in September 1990 and was only a 0.49 correction of its corresponding first wave, and more recently the last bull market beginning in March 2009 saw its first multi-week second wave correction end in June 2009, which was only a 0.30 correction of its corresponding first wave.

The 0.236 Fibonacci ratio of primary wave 1 at 3,258.59 has been passed. The next target is now the 0.382 Fibonacci ratio at 3,054.74. If price falls through that preferred target, then the 0.618 Fibonacci ratio at 2,725.23 would be the next target.

Primary wave 2 may now be continuing as a double zigzag or double combination, or as a single flat. Both a flat and a double are considered below.

It is also possible today that primary wave 2 may be over. The alternate hourly chart below looks at this possibility.

HOURLY CHART – DOUBLE ZIGZAG OR DOUBLE COMBINATION

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If primary wave 2 is unfolding as a double, then the first structure in a double may be complete as a zigzag and labelled intermediate wave (W).

The double may now be joined by a three in the opposite direction, a zigzag labelled intermediate wave (X), which may be incomplete.

Double zigzags normally have a sharp slope; they are not sideways movements, and their X waves are normally shallow. The second zigzag in a double has the purpose of deepening the correction when the first does not move price deep enough. If primary wave 2 unfolds as a double zigzag, then intermediate wave (Y) may bring price lower to the 0.382 Fibonacci ratio.

Double combinations are sideways movements. Their X waves are normally deep. The second structure in a double has the purpose of taking up time and moving price sideways. The second structure in a double for primary wave 2 labelled intermediate wave (Y) may unfold as either a flat or triangle and may end about the same level as intermediate (W) at 3,209.45.

There is no rule stating a limit for X waves in both of a double zigzag and double combination. Intermediate wave (X) may make a new high above the start of intermediate wave (W) at 3,588.11, especially if primary wave 2 unfolds as a double combination. X waves should exhibit weakness. Technical analysis would be used to identify the probability of this wave count.

HOURLY CHART – FLAT

Click chart to enlarge.

It is also possible that primary wave 2 may continue sideways as a flat correction.

Intermediate wave (A) within a flat correction must subdivide as a three; it may be a complete zigzag. Intermediate wave (B) should then unfold higher as a three; it may make a new price extreme beyond the start of intermediate wave (A) at 3,588.11, as in an expanded flat.

Intermediate wave (B) within a flat must retrace a minimum 90% of intermediate wave (A). The common range for intermediate wave (B) is from 1 to 1.38 times the length of intermediate wave (A).

B waves should exhibit weakness. Technical analysis in coming days will be used to judge the probability of this wave count.

ALTERNATE HOURLY CHART

Click chart to enlarge.

It is also possible that primary wave 2 was over as a relatively brief and shallow 0.27 zigzag. At this stage, this alternate wave count is published as the least likely short-term wave count.

Primary wave 3 may only subdivide as an impulse. Intermediate wave (1) within primary wave 3 may be incomplete. Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 3,209.45.

Minor waves 1 and 2 within intermediate wave (1) may be complete. Minor wave 3 may be complete. Minor wave 4 may not move into minor wave 1 price territory below 3,278.70.

SECOND WAVE COUNT

DAILY CHART

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This wave count is the same as the first wave count with the exception of the degree of labelling within cycle wave V. If the degree of labelling is moved up one degree, then it is possible that cycle wave V to end Super cycle wave (V) to end Grand Super Cycle wave I is complete.

A new low below 2,191.86 would add confidence in this wave count. At that stage, the first wave count would be invalidated.

A new bear market at Grand Super Cycle degree may be expected to last over a decade. It may take price below the start of Super Cycle wave (V) at 666.79 in March 2009.

Today labelling within downwards movement from the last all time high is changed for this wave count. A first five down, labelled minor wave 1, may be complete. Minor wave 2 may now be continuing higher as a zigzag.

HOURLY CHART

Click chart to enlarge.

It is possible that a Grand Super Cycle degree trend change may have occurred.

The first five down within the new trend is labelled minor wave 1.

Minor wave 2 may be an incomplete zigzag. Minute wave a within the zigzag may now be a complete five wave impulse. Minute wave b may move lower and may not move beyond the start of minute wave a below 3,209.45. Thereafter, minute wave c may move higher to take minor wave 2 to end closer to the 0.618 Fibonacci ratio. If this target is wrong, then it may not be high enough. The first correction within a bear market for the S&P is often very deep.

TECHNICAL ANALYSIS

WEEKLY CHART

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

A doji last week represents a pause and is not on its own a reversal pattern. Doji in down trends do not hold as much significance as when they occur in up trends.

This week the bearish signal from On Balance Volume supports the view that price may continue to fall this week.

DAILY CHART

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

At this stage, upwards movement of the last four sessions lacks enough strength to have confidence that a sustainable low may be in place. Today up volume was only 68% of total up / down volume and advancing issues were only 53% of total advance / decline. Volume did increase, but a bearish long upper wick suggests some pullback tomorrow.

This supports all Elliott wave counts except the alternate hourly 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 still not made new all time highs. The last high for the OCO AD line was in the week beginning January 13, 2020. There was 7 and a half months of bearish divergence between price and the OCO AD line at the September high. This may now support the more bearish second wave count. It is possible now that a major trend change may have occurred.

The NYSE All Issues AD line made new highs in the week beginning 1st of June.

Last week both price and the AD line have declined. There is no new divergence.

Large caps all time high: 3,588.11 on September 2, 2020.

Mid caps all time high: 2,109.43 on February 20, 2020.

Small caps all time high: 1,100.58 on August 27, 2018.

This rise has been led by large caps, which is a feature of an aged bull market. Only large caps have made new highs above the last swing high of the 11th of August.

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 made a new short-term high above the high two sessions prior, but the AD line has not. Upwards movement does not have support from a corresponding rise in market breadth. This divergence is bearish for the short term.

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 nearly 3 years of bearish divergence between price and inverted VIX. There is all of long, mid and short-term bearish divergence.

Last week price has moved lower to make a new short-term low below the low of two weeks prior, but inverted VIX has not made a corresponding new low. This divergence is bullish for the short term.

Comparing VIX and VVIX: Last week VIX has increased, but VVIX has declined. This divergence is bullish for price in the very 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 higher, but inverted VIX has moved lower. Upwards movement in price today did not come with a normal corresponding decline in VIX. VIX is more elevated. This short-term divergence is bearish for price.

Inverted VIX remains well above lows of the 3rd to 8th of September, but price is below. This divergence remains bullish.

Comparing VIX and VVIX at the daily chart level: Short-term bullish divergence noted yesterday has been followed by a little upwards movement today, so it may now be resolved. Today both VIX and VVIX have moved higher, but the slope for VVIX is steeper. This is slightly bearish for price for the short term.

DOW THEORY

Dow Theory still concludes a bear market is in place.

Dow Theory confirmed a bear market with the following lows made on a closing basis:

DJIA: 21,712.53 – a close below this point was been made on the March 12, 2020.

DJT: 8,636.79 – a close below this point was been made on March 9, 2020.

Adding in the S&P and Nasdaq for an extended Dow Theory, a bear market was confirmed:

S&P500: 2,346.58 – a close below this point was made on March 20, 2020.

Nasdaq: 7,292.22 – a close below this point was made on the March 12, 2020.

At this time, to shift Dow Theory from viewing a bear market to confirmation of a new bull market would require new highs made on a closing basis:

DJIA: 29,568.57

DJT: 11,623.58

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.

Published @ 06:57 p.m. ET.

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1. Always trade with stops.

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New updates to this analysis are in bold.