The short term expected downwards movement for Wednesday, which again did not happen.

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.

Upwards movement looks weak, but if it makes a new all time high tomorrow the alternate must be invalidated. Confidence in the target may then be reasonable. If the channel on the hourly chart is breached before a new all time high, then look for a pullback to first end about 2,384.59.

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

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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 again 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 best fit channel, that may provide some confidence that minute wave ii has begun. Unfortunately, the S&P has a tendency to form slow rounded tops. When it does that, it breaks channels but continues higher before eventually turning. That may be what is happening here. If price continues higher, then keep redrawing the Fibonacci retracement and use the new 0.382 Fibonacci ratio as a target for minute wave ii.

The best fit channel may be more reliable now than the Elliott wave channel was.

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.

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 double zigzag may again today be complete. It is now even deeper and has only 0.19 points left to move in. If this alternate wave count is correct, then price must move lower tomorrow (it was expected to do so today). The slight increase in volume for today’s upwards movement has reduced the probability of this alternate further.

However, there is enough weakness within upwards movement to still consider this alternate.

A new all time high tomorrow would see this alternate firmly discarded.

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.

Price keeps on moving higher despite weakness in volume, range and volatility. The bullish signal from On Balance Volume is today very strong and clear. MACD may be ready to give a bullish crossover.

Bollinger Bands may be beginning to widen slightly, but they still remain fairly tightly contracted.

VOLATILITY – INVERTED VIX CHART

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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

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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.

Bearish divergence still persists today with the AD line making a new all time high that is not met with a new all time high from price. This indicates weakness within upwards movement from price. Sometimes this divergence simply disappears, but more often it precedes downwards movement. A new all time high tomorrow would see it fail.

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 @ 09:23 p.m. EST.