Upwards movement continues as the main Elliott wave count expected.

Summary: The main wave count expects a low is now in. The target is at 4,606 and an invalidation point at 3,209.45.

If the main wave count is invalidated with a new low below 3,209.45 and then 2,191.86, then an 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

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 eighth 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 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. Within primary wave 3: Intermediate waves (1) and (2) may both be complete, and intermediate wave (3) may now be underway and may only subdivide as an impulse.

No second wave correction within intermediate wave (3) may move beyond the start of its first wave below 3,233.94.

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

HOURLY CHART

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Intermediate wave (3) may only subdivide as an impulse at minor degree.

Minute wave i within minor wave 1 may be complete. Sideways movement on Friday breached a channel, which was drawn on the hourly chart about minute wave i, indicating it may be over. Minute wave ii within minor wave 1 may not move beyond the start of minute wave i below 3,233.94.

Minute wave ii may be an incomplete double zigzag or double combination. It may end about support at the lower edge of the small best fit channel drawn about it, which would see it be very shallow.

When minute wave ii may be complete, then three first and second waves may be complete. An increase in upwards momentum may be expected if price breaks above resistance.

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 may be continuing sideways as a regular flat correction. Minor wave 2 may not move beyond the start of minor wave 1 above 3,588.11. Minute wave c within minor wave 2 would be very likely to move at least slightly above the end of minute wave a at 3,549.85 to avoid a truncation.

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 an incomplete flat correction. Minute wave c must subdivide as a five wave motive structure; it is subdividing as an impulse.

The target expects minute wave c to exhibit the most common Fibonacci ratio to minute wave a. Minute wave c would be likely to make at least a slight new high above the end of minute wave a at 3,549.85 to avoid a truncation.

Minuette wave (iv) within minute wave c now has poor proportion to minuette wave (ii) and is no longer contained within a channel drawn about minute wave c. This gives the portion of the wave count the wrong look.

TECHNICAL ANALYSIS

WEEKLY CHART

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

A strong upwards week with strong range sees price remain within a consolidation zone. Resistance is about 3,590 to 3,600. Support is about 3,200. A breakout is required for confidence in the next direction.

DAILY CHART

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

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.

The current set up is not perfect to indicate a V bottom because there was no 90% down day nor two back to back 80% down days within four sessions of the now two 80% up days. However, two back to back 80% up days straight after a low does indicate strength in buying power. This offers some support now to the main Elliott wave count.

Price is range bound. A breakout is needed for confidence in the next trend. ADX suggests it may be up.

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 main 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.

This week both price and the AD line have moved higher. Neither has made new short-term swing highs. 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.

Friday has completed an inside session. The AD line has declined. There is no new divergence.

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. There is all of long, mid and short-term bearish divergence. This supports the second alternate Elliott wave count.

This week price and inverted VIX have moved higher. Inverted VIX has made a very slight new high above the prior swing high, but price has not. This divergence is bullish for price, but it is very weak.

Comparing VIX and VVIX: Both VIX and VVIX have moved higher. VIX has made a new high above the prior high of the 8th of June, but VVIX has not. This divergence is bullish for price and may support either the main or first alternate Elliott wave counts.

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. Inverted VIX has made a new swing high by a very small margin above the prior swing high of the 12th of October, but price has not. This divergence is bullish, but it is weak.

Comparing VIX and VVIX at the daily chart level: Today both VIX and VVIX have moved lower. 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 @ 06:36 p.m. ET.

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1. Always trade with stops.

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New updates to this analysis are in bold.