Short term downwards movement to a target at 2,162 – 2,159 was expected before more upwards movement.

Price moved lower as expected falling 6.5 points short of the target before turning strongly upwards to close above the open and print a green daily candlestick.

Summary: The trend remains the same, until proven otherwise. Assume the trend is up while price is above 2,147.58. The mid term targets are 2,332 or 2,445. If price makes a new low below 2,147.58, then probability will shift to a deep pullback beginning, target zone 1,941 to 1,883. At this stage, a deeper pullback looks very unlikely. There is not enough selling pressure which would be required to push price lower.

Last monthly chart for the main wave count is here.

New updates to this analysis are in bold.

MAIN WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV is seen as a more shallow 0.28 double combination lasting 15 months. With cycle wave IV five times the duration of cycle wave II, it should be over there.

Cycle wave I lasted 28 months (not a Fibonacci number), cycle wave II lasted a Fibonacci 3 months, cycle wave III lasted 38 months (not a Fibonacci number), and cycle wave IV lasted 15 months (two more than a Fibonacci 13).

If the target for cycle wave V is for it to be equal in length with cycle wave I, then it may also be expected to be about equal in duration. So far cycle wave V is in its sixth month. After this month, a further 22 months to total 28 seems a reasonable expectation, or possibly a further 15 months to total a Fibonacci 21.

This first weekly wave count expects the more common structure of an impulse is unfolding for cycle wave V. Within cycle wave V, primary waves 1 and now 2 should be over. Within primary wave 3, no second wave correction may move beyond its start below 1,991.68. If price makes a new high above 2,203.68, then that would provide enough confidence that intermediate wave (2) should be over to move the invalidation point on the weekly chart up to 2,147.58.

There is one other possible structure for cycle wave V, an ending diagonal. This is covered in an alternate.

DAILY CHART

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Primary wave 2 is complete as a shallow regular flat correction. Primary wave 3 is underway.

Within primary wave 3, intermediate wave (1) is a complete impulse. Intermediate wave (2) may now be a complete flat correction.

It is still possible that intermediate wave (2) may not be complete and could continue sideways and a little lower. A deep pullback would not be expected, only a sideways combination, double flat or slightly lower expanded flat would be indicated. If price moves above 2,203.68, then upwards movement from the low at 2,147.58 would be more than twice the length of intermediate wave (2). At that stage, the probability that upwards movement is a B wave within intermediate wave (2) would be so low the idea should be discarded. A new high above 2,203.68 would add confidence in the upwards trend.

Within intermediate wave (3), no second wave correction may move beyond its start below 2,147.58.

Add a mid line to the base channel drawn about primary waves 1 and 2. Draw this channel from the start of primary wave 1 (seen on the weekly chart) to the end of primary wave 2, then place a parallel copy on the end of primary wave 1. The mid line may provide some support along the way up.

At this stage, it looks most likely that intermediate wave (3) has begun. It should be expected to show the subdivisions of minor waves 2 and 4 clearly on the daily chart with one to a few red daily candlesticks or doji. With minor wave 2 now showing as two red candlesticks, one doji and a green candlestick with a long lower wick, this wave count so far has a typical look.

HOURLY CHART

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Minor wave 2 now looks to be a complete expanded flat correction. It is relatively shallow at 0.45 the depth of minor wave 1. Minor wave 1 lasted four days and now minor wave 2 has lasted seven days. It is extremely likely to be over here if this wave count is correct.

At 2,230 minor wave 3 would reach 1.618 the length of minor wave 1. This target fits nicely with mid term targets for intermediate wave (3) to end.

Minor wave 3 may only subdivide as an impulse and within it minute wave i is most likely incomplete. When minute wave i is complete, then minute wave ii may not move beyond the start of minute wave i below 2,168.50. Minute wave ii may be shallow, but it may still show up on the daily chart as one to about three or four candlesticks. Minor wave 3 is likely to show its subdivisions clearly at the daily chart level. This is typical for the S&P’s third waves.

Mid term targets for intermediate wave (3) remain the same. At 2,332 intermediate wave (3) would reach equality in length with intermediate wave (1). If price keeps rising through this first target, or if when it gets there the structure is incomplete, then the second target would be used. At 2,445 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).

ALTERNATE WAVE COUNT

WEEKLY CHART

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This alternate may diverge from the main wave count.

The other structural possibility for cycle wave V is an ending diagonal. Ending diagonals are more often contracting than expanding, so that is what this alternate will expect.

Ending diagonals require all sub-waves to subdivide as zigzags. Zigzags subdivide 5-3-5. Thus primary wave 1 may now be a complete (or almost complete) zigzag, labelled intermediate waves (A)-(B)-(C) which subdivides 5-3-5.

The normal depth for second and fourth waves of diagonals is from 0.66 to 0.81 the prior actionary wave. Primary wave 2 may end within this range, from 1,941 to 1,883.

Primary wave 2 may not move beyond the start of primary wave 1 below 1,810.10.

When primary wave 2 is a complete zigzag, then another zigzag upwards for primary wave 3 must make a new high above the end of primary wave 1. It would most likely be shorter than primary wave 1 as diagonals are more commonly contracting. If primary wave 3 is longer than primary wave 1, then an expanding diagonal would be indicated.

The psychology of diagonals is quite different to impulses. Diagonals contain corrective characteristics and subdivide as a series of zigzags. When diagonals turn up in fifth wave positions, they take on some of the properties of the correction which inevitably follows them. The deterioration in fundamentals and underlying technicals is more extreme and more evident. There is some support for this idea at this time.

The final target of 2,500 would not be able to be reached by an ending contracting diagonal. The final target for this alternate would be calculated only when primary wave 4 is complete.

The classic pattern equivalent is a rising wedge.

DAILY CHART

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It is possible now that intermediate wave (C) is a complete five wave impulse. However, this wave count suffers from disproportion between minor waves 2 and 4 which gives this possible impulse an odd look. It looks like a three where it should look like a five. However, the S&P just does not always have waves which look right at all time frames.

Because this wave count expects to see a substantial trend change here from bull to bear for a multi week deep pullback, it absolutely requires some indication from price before confidence may be had in it. A new low below 2,147.58 would add confidence.

At this stage, there is not enough selling pressure to support this wave count. When the market has fallen recently, it has fallen of its own weight. For a deep pullback sellers would have to enter the market and be active enough to push price lower. That is not happening at this time.

TECHNICAL ANALYSIS

WEEKLY CHART

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

Last week ends with a small green doji candlestick. The week before completed a possible hanging man, but the green real body and the long lower wick (bullish) require bearish confirmation from the next candlestick before the pattern can be read as a bearish reversal pattern. That has not happened, so both weekly candlesticks should now be read as bullish.

Last weekly candlestick comes with lighter volume. A decline in volume along with a doji candlestick indicates that price movement for the week may have been more consolidation than trend.

On Balance Volume is bullish while it remains above both trend lines. There is no divergence between price and OBV last week to indicate any weakness in price, both made new highs.

RSI is flat and not extreme. There is room for price to rise further.

DAILY CHART

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

Today’s candlestick completes a green real body with a long lower wick. This should not be interpreted as a hammer candlestick pattern though because it does not come after a clear down trend. It comes rather in a sideways consolidation.

The bears managed to make a new low today, but the bulls rallied to push price higher and close to a high above the open. There is almost no upper shadow on this candlestick.

Daily volume data supports the rise in price today. This daily volume is now the strongest volume for the last eight days. The last day which was stronger was also an upwards day, for 5th of August. This volume profile is bullish. The rise in price is being supported by volume. This supports the main Elliott wave count.

Looking inside this day at hourly volume data, there was strong support for the rise in price. This supports the hourly Elliott wave count; the start of a third wave may have support from volume.

ADX today declined further indicating the market is not trending. ADX has not indicated a trend change during this time consuming consolidation: the +DX line remains above the -DX line.

ATR is still flat also indicating no trend, but this indicator has been flat for most of a trend which began back on 28th of June. There is something wrong with the first upwards wave of this trend because a normal healthy trend should have increasing ATR.

On Balance Volume is still constrained between the purple and yellow lines. A breakout of this small zone would give a bullish or bearish signal. For now OBV may halt the rise in price here as it finds resistance. There is divergence between price and OBV, but lately this has not been working to indicate price direction. It is noted, but given no weight in this analysis today.

RSI is still not yet extreme. There is room for price to rise, or fall.

MACD indicates weakening momentum during this consolidation. MACD has not yet indicated a trend change to upwards.

Bollinger Bands continue to remain constrained. It should be expected that they will soon again widen as the market trends. Volume suggests that trend will be up.

VOLATILITY – INVERTED VIX CHART

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Volatility is declining as price is rising. This is normal for an upwards trend.

There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. Each of these instances was followed by expected price movement if only for two days. Divergence with VIX and price is not always working, but it is still sometimes working. So it will be noted.

There was bearish divergence between price and inverted VIX from the high of 9th August to the high of 15th August. Price made new highs, but inverted VIX failed to make corresponding new highs. This indicates some weakness to price. This divergence has been followed so far by two days of new lows from price, so it may again be working. It will again be given some weight in analysis.

There was bullish divergence between price and inverted VIX yesterday: from the last small swing low on 10th August price made a higher low and inverted VIX made a lower low. This indicates weakness to downwards movement. This small bullish divergence has been followed by a green daily candlestick today, so it may also have worked. It may indicate some more upwards movement for at least another day or two, so it offers some small support today to the main Elliott wave count.

BREADTH – AD LINE

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

There is support from market breadth as price is rising. The AD line shows no divergence with price; it is making new highs with price. Both price and the AD line moved overall higher today.

DOW THEORY

Major lows within the prior bull market:

DJIA: 15,855.12 (15th October, 2014) – closed below on 25th August, 2015.

DJT: 7,700.49 (12th October, 2014) – closed below on 24th August, 2015.

S&P500: 1,821.61 (15th October, 2014) – has not closed below this point yet.

Nasdaq: 4,117.84 (15th October, 2014) – has not closed below this point yet.

Major highs within the new bear market:

DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.

DJT: 8,358.20 (20th November, 2015) – has not closed above this point yet.

S&P500: 2,116.48 (3rd November, 2015) – closed above this point on 8th June, 2016.

Nasdaq: 5,176.77 (2nd December, 2015) – closed above this point on 1st August, 2016.

Dow Theory Conclusion: Original Dow Theory still sees price in a bear market because the transportations have failed to confirm an end to that bear market. Modified Dow Theory (adding S&P and Nasdaq) has failed still to confirm an end to the old bull market, modified Dow Theory sees price still in a bull market.

This analysis is published @ 09:59 p.m. EST.