S&P 500: Elliott Wave and Technical Analysis | Charts – June 22, 2021
Summary: The primary trend remains up. Current downwards movement is expected to be a minor degree fourth wave, which is incomplete.
The wave count expects about two more weeks of overall downwards movement to a target at 4,053.24.
For the short term, a new high above 4,257.16 may indicate the pullback could be over.
The biggest picture, Grand Super Cycle analysis, is here.
Monthly charts are last updated here with video here.
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 fifteenth 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.
Within intermediate wave (3): Minor waves 1, 2 and 3 may be complete, and minor wave 4 may be unfolding.
Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.
A best fit channel is drawn about cycle wave V. Draw the first trend line from the end of intermediate wave (1) to the last high, 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.
Draw a channel about intermediate wave (3) using Elliott’s first technique. 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 if it is deep or time consuming enough.
Minor wave 2 lasted 12 sessions and was a relatively shallow 0.31 double zigzag. Minor wave 4 may last about three to five weeks. It may be a shallow time consuming flat, triangle or combination most likely.
Minor wave 4 may not move into minor wave 1 price territory below 3,950.43.
Minor wave 3 within intermediate wave (3) is shorter than minor wave 1. This is unusual for the S&P. It limits minor wave 5 to no longer than equality in length with minor wave 3, which was 533.82 points. When minor wave 4 is complete, then a limit and a target for minor wave 5 to end intermediate wave (3) may be calculated.
HOURLY CHART
Click chart to enlarge.
Minor wave 4 may subdivide as any Elliott wave corrective structure (there are more than 23 possibilities). The most common structure would be a zigzag. Further alternates may be required in another very few sessions.
At this stage, a zigzag may be unfolding lower. Minute wave a may now be a complete five wave structure. Minute wave b may have ended at today’s high. Minute wave b may be an almost complete zigzag as labelled, or it may need to be relabelled as a sideways combination or triangle.
If minute wave a is correctly labelled as a five, then minute wave b may not move beyond the start of minute wave a above 4,257.16.
FIRST ALTERNATE HOURLY CHART
Click chart to enlarge.
If minute wave a is labelled as a three, a double zigzag, then minute wave b may move higher. Minute wave b may make a new high above the start of minute wave a at 4,257.16 as in an expanded flat or running triangle.
If minute wave b is over at today’s high, then minor wave 4 may be unfolding as a regular flat. The target for this hourly chart is the same as the main hourly chart.
SECOND ALTERNATE HOURLY CHART
Click chart to enlarge.
It is possible that minor wave 4 may be over as a double zigzag. However, minor wave 2 also subdivided as a double zigzag, lasting 12 sessions. If minor wave 4 also subdivides as a double zigzag, then there is no alternation in structure and would have lasted just 3 sessions, so there is poor proportion between the two corrections.
This second alternate is provided mostly to indicate what the Elliott wave count would look like if the pullback is over. This has a low probability.
The confidence point is removed today because of the first alternate wave count. If a new high is seen tomorrow and there is any bearish divergence between price and the AD line, then the first alternate may be preferred. If a new high is seen with strength in volume and breadth, then this second alternate may be preferred.
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 at 4,056.88. 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.
A strong downwards week completes a Bearish Engulfing pattern that has push from volume. More downwards movement may be expected as most likely; however, this is not certain. The week beginning 25th January was also a Bearish Engulfing pattern with strong push from volume and was not followed by any more downwards movement.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
The last swing low is at 4,056.88 on the 12th of May. While price remains above this point, then a series of higher highs and higher lows would remain intact, the basic definition of an upwards trend.
One indication of a sustainable low is a 90% down day or two back to back 80% down days, followed within a very few sessions by one 90% up day or two back to back 80% up days. This is an indication of a 180° reversal from bear to bull, often occurring at a V bottom.
Friday completed an 80% down day. Now Monday completes an 80% up day.
However, an 80% down day followed by an 80% up day is a strong shift but not enough for strong confidence in a sustainable low. This data is another reason why the second alternate hourly wave count is considered, but it must be an alternate.
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: 4,257.16 on Jun 15, 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.
So far in this pullback it is mid caps which are weakest.
Last week both price and the AD line 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.
Today both the AD line and price have moved higher. There is no new divergence, but price is very close to a new all time high while the AD line is much further off. Breadth shows some weakness, which suggests either the main or first alternate wave count may be more likely.
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 lower. Inverted VIX has made a new short-term low below the prior low four weeks prior, but price has not. This divergence is bearish and supports the Elliott wave count.
Comparing VIX and VVIX at the weekly chart level:
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.
Both price and inverted VIX have moved higher. There is no new divergence. However, price is very close to a new all time high while inverted VIX is further off. There is a little weakness with volatility not declining in line with price, which suggests either the main or the first alternate Elliott wave count may be more likely.
Comparing VIX and VVIX at the daily chart level:
Both VIX and VVIX have moved lower today. There is no new short-term 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 @ 07:31 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.
—