Upwards movement continued as expected.
Summary: There are two days in a row of strong divergence between price and VIX, and now RSI is overbought and Stochastics shows some divergence while extreme. These indicators point to a downwards day here to start a short pullback. If the Elliott wave analysis of the hourly chart is right, the pullback may last just a few days and may end about either 2,222 or 2,203.
Last monthly chart for the main wave count is here.
Last weekly chart is here.
New updates to this analysis are in bold.
MAIN WAVE COUNT
DAILY CHART
Click chart to enlarge.
Cycle wave V must subdivide as a five wave structure. At 2,500 it would reach equality in length with cycle wave I. This is the most common Fibonacci ratio for a fifth wave for this market, so this target should have a reasonable probability.
Cycle wave V within Super Cycle wave (V) should exhibit internal weakness. At its end, it should exhibit strong multiple divergence at highs.
Within cycle wave V, primary waves 1 and 2 may be complete. Primary wave 3 may be over halfway through and is so far exhibiting weaker momentum than primary wave 1, which fits with the larger picture of expected weakness for this fifth wave at cycle degree. It is possible primary wave 3 may fall short of the target and not reach equality in length with primary wave 1.
Within primary wave 3, the upcoming correction for intermediate wave (4) should be relatively brief and shallow. Intermediate wave (1) was over very quickly within one day. Intermediate wave (4) may last a little longer, perhaps two or three days, and may not move into intermediate wave (1) price territory below 2,146.69.
At 2,473 primary wave 3 would reach equality in length with primary wave 1. This Fibonacci ratio is chosen for this target calculation because it fits with the higher target at 2,500.
When primary wave 3 is complete, then the following correction for primary wave 4 may last about one to three months and should be a very shallow correction remaining above primary wave 1 price territory. Although primary wave 3 has now moved above the end of primary wave 1, it looks like primary wave 3 needs to move higher to allow enough room for primary wave 4 to unfold. For this reason, if a pullback begins here, I would not yet expect it to be primary wave 4.
The maroon channel is redrawn as a base channel about primary waves 1 and 2. Draw the first trend line from the start of primary wave 1 at the low of 1,810.10 on the 11th of February, 2016, then place a parallel copy on the high of primary wave 1. Add a mid line, which has shown about where price has been finding support and resistance. This may provide support for any pullback here now that price is back above the mid line.
HOURLY CHART – PRIMARY WAVE 3 ETAIL
Click chart to enlarge.
This chart is provided today to illustrate the detail of primary wave 3 so far.
Intermediate wave (2) was a quick shallow 0.34 zigzag lasting just five hours. Intermediate wave (4) may be a more time consuming flat, combination or triangle, and it may last about two or three sessions at the most.
The cyan trend channel is a best fit. The lower edge might provide support for intermediate wave (4).
Intermediate wave (4) may not move into intermediate wave (1) price territory below 2,146.69.
If intermediate wave (3) is over at today’s high, then it exhibits no Fibonacci ratio to intermediate wave (1).
Ratios within intermediate wave (3) are: minor wave 3 has no Fibonacci ratio to minor wave 1, and minor wave 5 is just 2.07 points longer than equality in length with minor wave 3.
Ratios within minor wave 3 are: minute wave iii has no Fibonacci ratio to minute wave i, and minute wave v is 1.14 points short of 0.382 the length of minute wave iii.
Ratios within minute wave iii of minor wave 3 are: minuette wave (iii) is just 0.07 points longer than 0.618 the length of minuette wave (i), and minuette wave (v) has no Fibonacci ratio to either of minuette waves (i) or (iii).
Ratios within minor wave 5 are: minute wave iii has no Fibonacci ratio to minute wave i, and minute wave v is 0.99 points longer than 0.236 the length of minute wave iii.
HOURLY CHART
Click chart to enlarge.
Analysis of minor wave 5 is changed today. The extended fifth wave now looks like it was subminuette wave v within minuette wave (iii) within minute wave iii.
The middle of minor wave 5 has the steepest slope, and it ends with at least three fourth wave corrections. If this analysis is wrong, it may be in mislabelling minuette wave (iv), which may have ended further up and a final fifth wave up may still be needed to end the impulse of minor wave 5.
Intermediate wave (2) was over in just five hours. If intermediate wave (4) exhibits alternation in structure, then it may be a more time consuming flat, triangle or combination and may last about three to five days. It should be shallow.
With the change in how minor wave 5 is labelled, then minor wave 5 has not unfolded with an extended fifth wave and this changes expected behaviour for the depth of the next movement. Corrections following fifth wave extensions often find support about the end of the second wave within the extension. That may not now happen because the fifth wave does not look like it was extended.
Targets for a relatively brief pullback for intermediate wave (4) may be the 0.236 and 0.382 Fibonacci ratios. It may find support at the best fit channel.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Price moved overall upwards last week with a higher high (slightly) and a higher low. But the week closed with a red candlestick.
On Balance Volume last week moved lower. With stronger volume lastweek, the balance of it was downwards. The fall in price this week was supported by volume.
If price falls further this week, then the support lines for OBV may assist to hold the fall, at least temporarily.
If OBV breaks above the purple resistance line, that would offer a weak bullish signal.
RSI is not extreme. There is room for price to rise. There is mid term divergence with price and RSI for the new high last week and the high in August. This indicates weakness, but this is expected from the Elliott wave count.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is an upwards trend, but it is now beginning to be overextended. A pullback to relieve overbought conditions may be expected about here or very soon.
CNN’s Fear and Greed Index also shows extreme levels of greed. This can become more extreme though before a pullback develops; it can move higher into the ’90s.
ADX is still increasing as price rises; it still indicates an upwards trend. ADX is nearing extreme at 35, but it is not quite there yet; today it is at 33.54, so there is a little room for more upwards movement.
ATR is either still declining or in the process of beginning to increase. It may increase when a pullback arrives; the next pullback may be sharp.
On Balance Volume has given a clear bullish signal with a break above the purple trend line. This line may now provide support, forcing a pullback about here to be relatively shallow. This fits neatly with the Elliott wave count.
RSI is now clearly overbought, but it does not show any divergence with price yet though. RSI can remain extreme for reasonable periods of time during a trending market. If it shows divergence while extreme, that would be a reasonable indicator of weakness and a pullback may then be expected. There is still room for price to rise further.
Stochastics is extreme and does exhibit divergence with price. This does show weakness, but the divergence is only single. This oscillator may remain extreme for long periods of time during a trending market and may exhibit multiple divergence before price turns. There is still some room here for price to continue higher.
MACD is still bullish and exhibits no divergence with price to indicate weakness.
Bollinger Bands have only just begun to widen.
After the breakout following a small pennant pattern, using the measured rule, a target for the next movement up would be 2,318. It is still possible that price may reach this target, but it is looking too optimistic at this stage.
The decline in volume for this last upwards day is bearish as is the spinning top candlestick pattern. However, on its own this is not enough to expect a pullback here.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are a few instances of multi day divergence between price and inverted VIX noted here. Bearish divergence is blue. Bullish divergence is yellow. It appears so far that divergence between inverted VIX and price is again working to indicate short term movements spanning one or two days. While this seems to be working more often than not, it is not always working. As with everything in technical analysis, there is nothing that is certain. This is an exercise in probability.
Price for two days in a row now has moved higher and inverted VIX has also moved higher. This is highly unusual behaviour because these two normally move together. As price has moved higher fairly strongly over the last two days, volatility should have declined but has increased fairly strong too. This divergence can only be interpreted as bearish. Because the divergence here is so strong and has now persisted for two days I must give it reasonable weight in this analysis. Downwards movement should be expected tomorrow, and likely also the following session for Monday.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
Short term bullish and bearish divergence is again working between price and the AD line to show the direction for the following one or two days.
There is longer term divergence between price and the AD line, but like inverted VIX this has proven reasonably recently to be unreliable. It will be given no weight here.
There is no divergence today. The AD line moved higher with price, and this upwards movement has support from market breadth.
DOW THEORY
Major lows within the old 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 bear market from November 2014:
DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.
DJT: 8,358.20 (20th November, 2015) – closed above this point on the 9th of November, 2016.
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: The transportations indicate an end to the prior bear market. The transportation index confirms a bull market.
This analysis is published @ 08:42 p.m. EST.
a nice doji on the hourly and a bearish engulfing candle on the 5 min both of which could portend a turn here.
DJI has powered past another very significant trend-line connecting 2000 and 2007 highs.
Have a great week-end everyone!
The Russell has joined the SPX and DJI in the jig above the upper BB. It does look as if it wants to print a red candle today though so it could be a leader in the upcoming correction.
Kimble noting some important inflection points in bonds and stocks. Note the bond yield is inverted. Quite a few important trendlines going back to 2009 were demolished the last few days. Another critical one now in play, going back 20 years.
Here is the commentary that went with the chart:
” The S&P 500, has remained inside of rising channel (1), for the majority of the past 20-years.
The 10-year yield (Inverted) has remained inside of rising channel (2), for the majority of the past 20-years.
S&P is being presented with a chance to breakout of its 20-year channel and yields are being presented with a chance to break down out of a 20-year rising channel at (3).
Just The Facts…. Seldom has stocks been hitting resistance and inverted yields at support, at the same time. One of them was back in 2007! What takes place at (3) is NOT your average test of support & resistance friends!!!
All of this is taking place, as sentiment is also reflecting some rare numbers. According to Sentimentrader.com the bullish sentiment on the 30-year yield is near “0% bulls” and the dumb money stock confidence level, now stands near the “80% bullish level.”
good article Verne
🙂
Yes nice piece, but if it breaks out of the channel wouldn’t the result be at least a 20% melt up? And how do you factor in the money printing? Check this article out!!
https://www.scribd.com/document/331339791/EDLiq#fullscreen&from_embed
By some measures, the market is now more overbought than it has been in twenty years!
There is hardly a single analyst who is not absolutely certain that this bull has a ways yet to run, and the EW count certainly is indicating this to be the case. EWI sent out another mea culpa interim report over their miscalling an ED in DJI and did make a good case that a number of market metrics were certainly not suggesting this manic run higher but the exact opposite. Both DJI and SPX closed entirely above their upper BBs today; not just a penetration but a close above. I know the EW count is calling for a shallow correction and if that is indeed what develops, it will certainly not do much to dispel the historic levels of optimism we are seeing. It is the habit of genuine bull markets to buck off its riders. Of course we could simply see an extended period of sideways movement to relieve the overbought conditions as this is exactly what has been happening ahead of these manic runs higher. I remain intensely curious to see how long price can continue to violate upper BBs without a meaningful or lasting correction. As I have previously stated, this appears to me to be uncharted territory. All things do eventually come to an end and so will this bull market. How and when it appears, will remain a mystery for the immediate term. I do have a sneaking suspicion that it will not end the way most of us expect, so as oxy moronic as sounds, one has to be prepared to expect the unexpected.
Clearly this market has to date completely defied all expectations and continues to do so. Be sure to hedge!
PS another strange recent development is the failure of fuutures to give an hint of market direction and I think this is by design so be careful!