The main Elliott wave count expected upwards movement. This is what has happened to start the new week.
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.
For the short term expect a red daily candlestick tomorrow: volume is weak, On Balance Volume is at resistance, and the AD line exhibits bearish divergence.
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.
This main wave count and the alternate below are identical up to the end of intermediate wave (3) within primary wave 3.
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 may now be complete. Use the 0.382 Fibonacci ratio as a target for minute wave ii; the first second wave correction within a new trend for the S&P has of late been relatively shallow.
When price breaks below the lower edge of the Elliott channel, that may provide some confidence that minute wave ii has begun. It is entirely possible that minute wave i may continue higher while price remains within the channel. If it does, then redraw the Fibonacci retracement along it.
Minute wave ii may not move beyond the start of minute wave i below 2,353.29.
ALTERNATE WEEKLY CHART
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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.
An Elliott channel is added to cycle wave V. The lower edge may provide support for primary wave 4.
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
Click chart to enlarge.
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
Click chart to enlarge.
A five down is complete for minor wave 1.
The structure of minor wave 2 no longer has quite as good a fit as the main wave count after today’s upwards movement. This has reduced the probability of this alternate today.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Last 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 the last 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 last 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 I would judge the alternate wave count to have a fairly reasonable probability.
Divergence with the new all time highs last 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 still bearish. On Balance Volume is extremely close to resistance and this may serve to halt the rise in price here. Together (with volume declining) this looks very bearish, so expect a downwards day tomorrow.
ADX has not yet indicated a trend change.
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.
There is no new divergence today between price and VIX.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
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.
The AD line made a new all time high today, yet price did not. This divergence is bearish and indicates weakness within the upwards movement from price.
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 @ 07:57 p.m. EST.
Wouldn’t it be just typical if this upwards movement falls short of a new ATH, then price turns down and moves lower but takes it’s time.
Then both wave counts at the hourly chart level may remain valid for another week or more. Leaving us uncertain.
Yep. Pretty sure Mr Market would just like that.
So far minute wave i could still again be complete, but price still remains within the channel.
Yeah…what I wanna do is put Mr. Market over my knee and administer a serious spanking…Bad! Bad! 🙂
Crikey Verne, almost spat my coffee all over my screen….
Now I have a pic in my head of Mr Market being seriously told off
🙂
More Verne, more,,,,, harder.
SPX 2400 is proving to be an iron dome of formidable resistance to further upward movement.
Granted failure to penetrate so far could be due to assault coming on relatively weak volume. I have a trigger finger ready to go to all cash depending on how we close today. A VIX green print could signal further weakness tomorrow.
Taking profits on FXE bearish call credit spread. Rolling into 108.50 puts.
The EURO has a long way to fall. This kind of extreme price action is un-natural, and achieved by ridiculous leverage available only to banksters. The fall should be dramatic….
This market is crazy. First time in awhile almost entirely on the sidelines.
Tragic news out of Manchester. A nail bomb detonated at the Ariana Grande concert.
So far, 20 fatalities, several hundred injured. Very sad! 🙁
The world is going mad
🙁 🙁 🙁
Not the whole world has gone mad. Islamic terrorists are mad. The rest of us are caught in the cross-hairs. What makes this Islamic terrorist act so markedly evil is that the primary target was children, non-Islamic children. Of course our thoughts and prayers are for the parents and extended families of these children.
On the one hand, I was taught to respect others, and always try to think the best of people’s motives. Having said that, I am frustrated no end with doltish politicians that keep talking about “Islamophobia” and the “Religion of Peace”, while their citizens are being slaughtered with startling regularity. While it is true that not all Muslims are terrorists, I defy anyone to point out any kind of religiously inspired violence that was not committed by Muslims. How on earth can you even begin to deal with a problem when you refuse to even acknowledge what the problem is??!!
Respect is a two-way street.
Whatever you think of Trump, the man found new and deep respect in my eyes when he walked into the Saudi palace after having informed them in no uncertain terms that his wife and daughter would remain uncovered, and made it stick, despite all his sycophantic advisers bleating about “breaking protocol”.
It is interesting that Trump was awarded more pomp and circumstance than any other US president in recent history, including both bosom buddy Bushes. Sadly, that important lesson will be lost on the idiot Western so-called press.
Well said Verne; still sitting on hands in my PA. AI Fund crushed it the past two weeks, left with 9% capital on. Pretty amazing manipulation today, market is too dangerous for me. If it makes a minor new high, I’m going to re-enter shorts, but the banksters have succeeded in disgusting me enough to not partake. Prayers are with the very innocent victims in Manchester. I have a 1yr old daughter and 3 year old son, and I can’t bear to imagine what the victims parents are going through. What cowards these barbarians are……
I am also very close to moving to the sidelines. Very cagey market right now and I agree a bit dangerous. I have a call spread I will be exiting at the close if we hold onto 2400.00
I opened a bear call spread on the EURO via FXE and it looks to be headed in the right direction and that will be my only position.
While that is true, and I agree with you Verne, there is also another part of the problem.
I recall watching the twin towers fall in horror, and then in mounting horror in days after hear the US prepare to invade Afghanistan. I heard the speeches invoking God from the US side, and from my POV on the other side of the world (not getting the same propaganda that you get in the USA) it looked like a religious war to me.
It still does.
Never ever in the entire history of Afghanistan has a foreign invader been able to invade and win. The US was doomed to fail in Afghanistan, and in fact make it worse.
I have friends in Egypt (they’re non religious) and I asked them why the Middle East hates the US so much. It’s because of constant meddling and invasion. Setting military bases on holy sites. In part anyway.
Now, I think that there are plenty of crazy people who use their religion as an excuse to do horrible things. But invading their countries and bombing their countryside is only going to breed more extremism.
If the decision was up to me I’d be staying the hell out of the whole area, leaving them to themselves, and halting the sale of arms as much as possible. And using some diplomacy.
I would respect Trump (actually, it was Melania who was the one who remained uncovered, so I’ll give her the due actually) if he was consistent on that point.
AFAIK he lambasted Michelle Obama for doing exactly the same thing.
So no, I’m not going to offer Trump any respect for that particular incident.
On the subject of political views, I’d like to say just one more thing.
I have a brother in law who is the smartest person I know, also one of the most peaceful and gentle people. He has a Phd in organic chemistry and worked for years as a research scientist.
When the twin towers fell he was living and working in NYC. He came home shortly afterwards.
When he came home he was firmly of the opinion that the US invasion of Afghanistan was justified and a good thing. Shortly after his arrival his view changed 180 degrees. As he tells it, when inside the USA the information he received daily strongly formed his views. It is his opinion that he gets more balanced and varied information outside of the USA.
We’re very different culturally NZ and USA. And from a greater distance, not being emotionally invested in what happens in the USA, we’re more able to judge events from a less subjective POV.
And so my opinions and views will be often diametrically opposed to the views and opinions of most of my members here.
That’s okay, and I completely respect your right to form your views and express them. I only wished to explain where I’m coming from.
As hard as I am on Islamic terrorists, Lara, I am even harder on the blood-thirsty, war-mongering, neo-con murderers in the US. I understand your point and entirely agree. We in the West are unquestionably reaping the whirlwind, having sown the wind. While this is not a popular view among many Americans, the fact is that we also have blood on our hands as a result of our incessant meddling in the affairs of other nations. France is reaping what it has sown. Period. It has committed the most horrific abuses in Africa and anyone that knows the history of their rampaging in that continent will know of what I speak. Sarkozi was instrumental in the destruction of one of the most stable and prosperous countries in Africa as was Britain and the US, to say nothing of the vast amount of Gold they outright stole from Libya. So while my heart breaks for the citizens who are maimed and mutilated by these seeming senseless acts of terror because of what their leaders have done, there can be no denying that we in the West are responsible for the deaths of literally millions of Muslims with all our immoral wars. You are absolutely right in what you stated. We also have much blood on our hands…. 🙁
The world would be a much safer and more peaceful place if we stopped making so many weapons and stopped meddling in the affairs of others which are none of our business.
And I’ll include NZ in that too.
We in NZ were led to believe we weren’t involved in the latest Iraq and Afghanistan wars, but our politicians lied. We have troops there too. The public had appetite only for our military (puny as it is) to go on humanitarian and reconstructive grounds.
The British learned the hard way with Northern Ireland that responding to terrorist threats and realities by more force and violence does not work. Peace was only achieved with dialogue and diplomacy, and only in good economic times.
But then it’s my opinion that British withdrawal from Ireland could have achieved peace much earlier.
We just don’t seem to be able to learn the lessons of history. And we keep on with the force, creating more breeding grounds for extremists to retaliate.
This isn’t going to end well 🙁
Anyway, as for how it affects markets, I’m of the EW opinion that it will get worse after the market turns from bull to bear.
well now,, looky whos first
You rascal. You got me good.