The main Elliott wave count expected more upwards movement to end the week, which is what happened.
Summary: Always assume the trend remains the same until proven otherwise. Assume the bull market remains intact and price may make new all time highs while price remains above 2,353.29. The target is at 2,469.
If price makes a new low below 2,353.29, then the outlook will change to an expectation of a primary degree correction to find support at the lilac trend line.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
MAIN ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
This wave count sees the middle of primary wave 3 a stretched out extension, which is the most typical scenario for this market.
Primary wave 3 may be incomplete. A target is now calculated for it on the daily chart.
There is alternation within primary wave 3 impulse, between the double zigzag of intermediate wave (2) and the possible triangle or combination of intermediate wave (4).
When primary wave 3 is a complete impulse, then a large correction would be expected for primary wave 4. This may be shallow.
Thereafter, primary wave 5 may be expected to be relatively short, ending about the final target at 2,500.
DAILY CHART
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Intermediate wave (4) may be a complete regular contracting triangle. It may have come to a surprisingly swift end with a very brief E wave.
There is already a Fibonacci ratio between intermediate waves (3) and (1). This makes it a little less likely that intermediate wave (5) will exhibit a Fibonacci ratio to either of intermediate waves (1) or (3); the S&P often exhibits a Fibonacci ratio between two of its three actionary waves but does not between all three.
Within intermediate wave (5), minor wave 1 is complete. Minor wave 2 should be complete.
Within minor wave 3, no second wave correction may move beyond the start of its first wave below 2,353.29.
The structure of intermediate wave (5) on the daily chart does not look complete. So far it looks like a possible three up. Minor wave 3 still needs to complete, then minor waves 4 and 5. This may last another couple of weeks at least.
The alternate idea that intermediate wave (4) is still incomplete will not be published daily at this time to keep the number of charts manageable and this analysis as clear as possible. It does not diverge from the new alternate below in terms of expected direction or structure.
HOURLY CHART
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Minor wave 2 fits as a very common expanded flat. Within minor wave 2, minute wave b is a 1.41 length of minute wave a, only a little longer than the common range of up to 1.38.
Minute wave c is 4.28 points longer than 2.618 the length of minute wave a.
A new all time high would see the alternate below discarded and this main wave count confirmed.
Within minor wave 3, which may only subdivide as an impulse, the first wave up for minute wave i would likely be incomplete. When it is a complete five, then a three down for minute wave ii may not move beyond the start of minute wave i below 2,353.29.
ALTERNATE WEEKLY CHART
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This idea is new.
What if the last all time high just ended primary wave 3? What if primary wave 4 began with the strong drop? At the weekly chart level, this labelling has a good look that will also fit on the daily chart.
This only works if intermediate wave (4) was over as a relatively quick single zigzag. This does not offer good alternation nor good proportion with the double zigzag of intermediate wave (2). However, this wave count is still considered because the S&P just does not always exhibit nice proportions nor does it always exhibit good alternation.
Primary wave 2 was a regular flat correction lasting 10 weeks. Given the guideline of alternation, primary wave 4 should be expected to most likely be a single or multiple zigzag and so more brief than 10 weeks. It may find support at the lilac trend line. This trend line is drawn from the high of the 20th of May, 2015, to the high of the 23rd of August, 2016.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
There is a close Fibonacci ratio within primary wave 2. Primary wave 3 does not exhibit a Fibonacci ratio to primary wave 1. When primary wave 4 completes and primary wave 5 begins, then it would be most likely to exhibit a Fibonacci ratio to either of primary waves 3 or 1, with equality in length with primary wave 1 the most likely.
ALTERNATE DAILY CHART
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A movement at primary wave degree should begin with a clear five down on the daily chart. This would still be incomplete; only minor wave 1 would be complete and minor wave 2 may be complete. If minor wave 2 moves higher, it may not move beyond the start of minor wave 1 above 2,405.77.
A new low below 2,353.29 would now see the main wave count discarded in favour of this alternate.
ALTERNATE HOURLY CHART
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A five down is complete for minor wave 1. A three up is complete for minor wave 2, reaching just above the 0.618 Fibonacci ratio of minor wave 1.
A target is calculated for minor wave 3.
Along the way down, upwards corrections should find resistance at the upper edge of the base channel if this wave count is correct.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
This weekly candlestick is an outside week with the balance of volume downwards. Volume shows an increase, so there was support for the fall in price during the week.
The long lower wick on this weekly candlestick is bullish. Support right at the upper edge of the triangle trend line is bullish. This looks like a typical breakout from the large symmetrical triangle followed by a curve back to test support at prior resistance.
So far this all supports the main wave count more than the alternate.
However, On Balance Volume gives a reasonable bearish signal this week supporting the alternate wave count. Long standing members are aware that I give a lot of weight to On Balance Volume with trend lines because it works very well. For this reason, this week I would judge the alternate wave count to have a fairly reasonable probability.
Divergence with the new all time highs this week from price and RSI is also fairly bearish. This supports the alternate wave count.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume is bearish. ATR is bearish. MACD is bearish. Long upper wicks on the last two daily candlesticks are bearish.
Some reasonable concern may be had with Bollinger Bands contracting over the last few days as range returns to the market. If this is the beginning of a deeper pullback, then it would be more normal for this to have an increase in volatility, evidenced by widening Bollinger Bands.
On Balance Volume gives no new signal at the daily chart level.
Weak bearish divergence between price and RSI supports the alternate wave count. RSI is neutral, so there is room for price to rise or fall.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.
The last few bearish signals from vix may be interpreted to overall support the alternate wave count.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is no new divergence between price and the AD line.
With the last all time high for price, the AD line also made a new all time high. Up to the last high for price there was support from rising market breadth.
There is normally 4-6 months divergence between price and market breadth prior to a full fledged bear market. With no divergence yet at this point, any decline in price should be expected to be a pullback within an ongoing bull market and not necessarily the start of a bear market.
If the alternate wave count is correct, then it would be possible that primary wave 4 may pull the AD line down low enough, so that when primary wave 5 resumes the bull market the AD line may not make new all time highs. Thus divergence may develop from the last high this week with price and the AD line and that divergence may span 4-6 months. However, while this is entirely possible, it is also a rough speculation on the future.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq continue to make new all time highs. This confirms a bull market continues.
The following lows need to be exceeded for Dow Theory to confirm the end of the bull market and a change to a bear market:
DJIA: 17,883.56.
DJT: 7,029.41.
S&P500: 2,083.79.
Nasdaq: 5,034.41.
Charts showing each prior major swing low used for Dow Theory are here.
This analysis is published @ 09:25 p.m. EST on 20th May, 2017.
The SPX has opened above the previous close two consecutive days. In addition, at no point during the last two days did the SPX breach the previous days’ close. This is another small piece of evidence supporting the bullish main count.
Now we wait to see if we can get some bullish crossovers on the SPX MACD. First we need the 4 hour and then the daily.
Of course Lara will have the volume and on-balance volume information tonight.
Have a great day.
Volume is weak. On Balance Volume is now at resistance.
Despite this upwards day I’m reading this all as rather bearish.
Still thinking a hedge may be the best approach here.
Yes indeed. We could be looking at a counter-trend move.
I understand. That is why I noted these are just small pieces of evidence to support the bullish case.
The fact that the gap was not closed today but came so close supports the bearish case. It also is just one piece of evidence.
The fact is there are many counts and / or alternates possible at this time. Some may be more probable than others, but we cannot be certain of any. That is why it is easier said than done when we say, “Assume the trend remains the same until proven otherwise.?” Easier said than done indeed.
Looking forward to your analysis later this evening when I get home from a conference on Social Security!
It appears to me that the gap down on March 17th has been closed. Ever so barely so but closed indeed. This is some support for the main and bullish count. The determining factor though for the bullish case is a new ATH. Since greater clarity would be present at that point, I suspect Mr. Market will not give it to us so easily. Perhaps a correction first. Perhaps.
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I have just noticed that the close of the gap I wrote of in the above paragraph, was from the low of the day on t he 17th. However, the end of day close of the SPX on the 17th was a few points higher at 2400 and change.
The bullish case will be stronger if the end of day 17th is exceeded.
I’m reading that gap as between the low of the 16th and the high of the 17th. From StockCharts data:
The low of the 16th was 2,396.05.
The high of the 17th was 2,384.87.
So the gap is from 2,384.87 to 2,396.05.
With today’s high at 2,395.46 the gap is not quite closed, but very close. There is just 0.6 still “open”.
Thanks for the explanation and clarification.
One of the great strengths of EW analysis is that it will generally reliably tell you WHERE price is going. What it does not do(and this is where traders, myself included, can sometimes get into serious trouble), is WHEN, and HOW. The current situation is one where keeping that critical distinction in mind can help in making trading decisions and equally important, timing trade decisions. If we are in a fourth wave correction, there is a very good chance we will see around a 38% re-tracement of the third wave. If it is a primary degree, we have a good idea of where that will take us. There is a very neat confluence of trend lines on Lara’s chart which also happen to be in the area of the 200 dma and so we have a very high probability target.
Since it is not yet clear what from the fourth will take, I am making a conservative bearish call credit spread on SPY until we get some confirmation using the 240/241.50 strikes with a very tight stop and hard exit on any close above 241.0
That’s why I don’t trade futures. It’s hard enough to try and figure out price in terms of targets, let alone time! Factoring that in to be anywhere near the accuracy required for trading futures is just a nightmare.
I can give an estimate in days, weeks or months, but that’s subject to a large degree of variation.
And sometimes waves don’t have good proportions, and don’t exhibit Fibonacci durations.
I took me awhile of reading your analysis, but one day the lights really went on for me personally. Your price targets were remarkably accurate. Granted the banksters would inflict terrific whipsaws along the way to try and shake folk out of their trades. Once confidence has been established on the correct trend, I think the next most critical thing for us as traders is keeping a firm eye on the price targets. It has made a dramatic (and profitable!) difference in the way I manage my trades and I just wanted to share the idea with our members who may not have given it much thought. As some smart guy once said “Volatility to be Ignored!’ 🙂
Nice open for the day and week for the bulls. Lets see if they can push it above 2406 today or tomorrow.
For an expected third wave on deck, futures so far remarkably muted. We had a clear signal via futures for the strongest portion of wave C down of minor two so perhaps we are about to see another series of nested first and second waves at sub-min, minuette, and minute degree.
Interestingly enough, I have also seen a wave count that strangely has an intermediate A and B of a possible primary four complete at Friday’s high; far too short it seems to me for a correction of primary degree.
Rampant Futures manipulation from 6am on; par for the course I guess. Sitting on hands for a bit.
First comment on the weekend analysis. Yahoo!
nice,, have a great weekend