Downwards movement continued a little, but the session then saw upwards movement to end with a close in the green.

All three Elliott wave counts remain valid.

Summary: While the first wave count again expects upwards movement tomorrow, this does not have support anymore from classic technical analysis (at least for the short term). The main wave count has a target at 4,606 and an invalidation point at 3,209.45.

More downwards movement looks most likely again for tomorrow.

The first alternate wave count expects downwards movement to 3,171 and has a channel for support. The invalidation point for this wave count is at 2,191.86.

If the first alternate is invalidated, then the second alternate may be used. This wave count is extremely bearish. It expects a bear market to continue for several years and possibly over a decade. It has no lower final target at this stage, but a short-term target is at 2,937.

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 is in its seventh month.

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

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.

DAILY CHART

Click chart to enlarge.

Primary waves 1 and 2 may both be complete. Primary wave 3 may now be underway.

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

Primary wave 1 looks extended. The target for primary wave 3 expects it to also be extended.

HOURLY CHART

Click chart to enlarge.

Intermediate wave (2) may again be complete as a double zigzag. The Elliott wave structure of minute wave c again looks complete.

If intermediate wave (2) extends lower, then it may not move beyond the start of intermediate wave (1) below 3,209.45.

For the short term, this first wave count no longer has reasonable support from classic technical analysis.

FIRST ALTERNATE WAVE COUNT

DAILY CHART

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It is possible that primary wave 2 may be an incomplete zigzag. Within the zigzag: intermediate wave (A) subdivides as a five, intermediate wave (B) subdivides as a three, and intermediate wave (C) may be an incomplete five wave impulse.

Draw a channel about primary wave 2 using Elliott’s technique for a correction. Look for support at the lower edge of this channel. The target for intermediate wave (C) expects it to exhibit the most common Fibonacci ratio to intermediate wave (A).

If price breaches the lower edge of this Elliott channel with a full red candlestick below and not touching the lower edge of the channel, then the second alternate wave count below should be more seriously considered.

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

HOURLY CHART

Click chart to enlarge.

The hourly chart focusses on the five wave impulse of intermediate wave (C).

Minor waves 1, 2 and 3 within intermediate wave (C) may be complete. Minor wave 3 would be 12.64 points short of 1.618 times the length of minor wave 1.

Minor wave 4 may not move into minor wave 1 price territory above 3,419.93. Minor wave 4 may have completed today as a zigzag; however, it is possible that it may also continue higher tomorrow as a double zigzag.

SECOND ALTERNATE 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.

A first five down, labelled minor wave 1, may be complete. Minor wave 2 now also may be complete. A third wave down at minor degree may just have begun. It should exhibit strength if this wave count is correct. So far it has not. This wave count does not have support from technical analysis.

Major new downwards trends for this market usually begin with strength. The 26th of October is a 90% down day, and the session for the 28th of October completes as an 80% downwards day; this may offer very small support to this wave count. However, recent new all time highs in both NYSE AD line and Lowry’s OCO AD line suggest this wave count has a very low probability.

The last bear market of February to March 2020 (a 35% drop in market value, meeting the technical definition of a bear market as it was over 20%) came after no bearish divergence between price and market breadth. This was the third instance of a bear market formed following zero divergence between price and market breadth; the first was in 1946 and the second was in 1976. Bear markets forming following zero divergence between price and breadth are positively correlated with being more shallow.

This very bearish wave count requires a new low below 2,191.86 for confidence.

HOURLY CHART

Click chart to enlarge.

Minor wave 2 may be a complete zigzag.

Minor wave 3 downwards may be underway. Minuette wave (i) within minute wave i within minor wave 3 may be a complete leading expanding diagonal.

Minuette wave (iii) may be complete and may be just 2.94 points short of 1.618 times the length of minuette wave (i).

Minuette wave (iv) may be complete today as a single zigzag, or it may move higher tomorrow as a double zigzag. If it moves higher, then it may find resistance at the upper edge of the Elliott channel.

Minuette wave (iv) may not move into minuette wave (i) price territory above 3,420.32.

When minute wave i may be a complete five wave impulse, then the invalidation point must move back up to its start at 3,549.85. A following bounce for minute wave ii may not move beyond the start of minute wave i.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last week closes with a longer lower wick and downwards movement within the week did not have support from volume. Support about 3,393 (a prior all time high) has held last week. With this price point now breached on Monday, it is not longer bullish.

There is an upwards trend in place.

DAILY CHART

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

There are now two back to back 80% upwards days shortly after the low of the 24th of September. This adds some confidence that this low may be sustainable.

This particular market commonly forms V bottoms. It will at its lows often exhibit one 90% down day or two back to back 80% down days, followed quickly (within four sessions) by one 90% up day or two back to back 80% up days. So far there is one 90% down day and now an 80% down day. There is not yet evidence of a V bottom.

ADX and On Balance Volume are now bearish. This chart supports either alternate Elliott wave count.

Demand in this last session was moderate with up volume only 69% of total up / down volume, and total volume was slightly lighter than the prior session. This suggests the bounce today may have been a pause within ongoing downwards movement.

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 12th of October. This erases prior bearish divergence with the last all time high in January 2020. With both the NYSE and OCO AD lines making new all time highs, breadth is leading price. This is a strong bullish signal and supports the first Elliott wave count.

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.

Last week price has moved lower, but the AD line has moved higher. This divergence is bullish for the 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 lower, but the AD line has moved higher. This divergence is bullish for the short term, but it is weak.

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. This supports the second alternate Elliott wave count.

Last week price and inverted VIX have moved lower. There is no new divergence.

Comparing VIX and VVIX: Last week both VIX and VVIX have moved higher. 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.

Today price has moved lower, but inverted VIX has moved higher. This divergence is bullish for the short term, but it is weak.

Comparing VIX and VVIX at the daily chart level: Following bearish divergence for price, both VIX and VVIX have moved higher. There is no new divergence.

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 – closed above on 7th October 2020.

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 @ 07:26 p.m. ET.

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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.