A small inside day sees the Elliott wave count only slightly changed at the hourly chart level.
Summary: We should always assume the trend remains the same until proven otherwise. While it is possible today that primary wave 3 may be over, assume that it may continue higher while price remains above 2,430.98. The target for it to end is now at 2,497.
If price moves strongly lower next week, then the probability that primary wave 4 has arrived will increase. Confidence may be had if price makes a new low below 2,430.98. If that happens, then expect a multi week to multi month pullback to end about 2,320.
At the end of this week, Lowry’s see some short term weakness that supports the idea primary wave 4 has just arrived.
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.
It is possible that primary wave 3 is complete. However, some confidence may be had in this view only with a new low below 2,430.98. Further and substantial confidence may be had if price makes a new low below 2,405.70. Fibonacci ratios are calculated at primary and intermediate degree. If primary wave 3 is complete, then it exhibits the most common Fibonacci ratio to primary wave 1.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 4 should last about 8 weeks minimum for it to have reasonable proportion with primary wave 2. It is the proportion between corrective waves which give a wave count the right look. Primary wave 4 may last 13 or even 21 weeks if it is a triangle or combination.
If primary wave 4 reaches down to the lower edge of the Elliott channel, it may end about 2,320. This is very close to the lower range of intermediate wave (4); fourth waves often end within the price territory of the fourth wave of one lesser degree, or very close to it.
If price reaches the target at 2,500 and either the structure is incomplete or price keeps rising, then the next target would be the next Fibonacci ratio in the sequence between cycle waves I and V. At 2,926 cycle wave V would reach 1.618 the length of cycle wave I.
DAILY CHART
Click chart to enlarge.
The daily chart shows only the structure of intermediate wave (5); this structure is an impulse.
There is perfect alternation between the deep expanded flat of minor wave 2 and the shallow double zigzag of minor wave 4.
There are no adequate Fibonacci ratios between minor waves 1, 3 and 5. This is not uncommon for the S&P500. Minor wave 3 exhibits strongest momentum and is the longest actionary wave, so this wave count fits with MACD.
It must be accepted that it is entirely possible that primary wave 3 may not be over and may continue higher while price remains above 2,405.70.
FIRST HOURLY CHART
Click chart to enlarge.
Minor wave 5 may now be a complete five wave impulse.
Downwards movement bounced strongly off the lower edge of the pink Elliott channel containing minor wave 5. A strong breach of that channel would indicate a trend change, but it may not necessarily be a trend change at primary degree.
The duration now of sideways movement during Friday’s session looks like a wave separate to the prior wave down. On the five minute chart, minute wave i may fit as a five wave impulse. Upwards movement for Friday may be an incomplete bounce for minute wave ii.
Minute wave ii may not move beyond the start of minute wave i above 2,484.04.
SECOND HOURLY CHART
Click chart to enlarge.
It is still possible that minor wave 5 is incomplete, that minute wave iv is still unfolding.
This wave count must be an alternate because there is inadequate alternation between minute waves ii and iv: both are expanded flats. There may still be good alternation in depth, but alternation is a guideline and not a rule and the S&P500 does not always exhibit perfect alternation.
Minute wave iv may have ended at Thursday’s low. The following fifth wave may end mid way within the channel, or at the upper edge. The target is recalculated.
Minute wave iv may not move into minute wave i price territory below 2,430.98.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is a little short term bearishness this week to support the labelling of the daily Elliott wave count: some support from volume for downwards movement, divergence still between price and RSI, and a doji candlestick.
With still extreme ADX, the conditions look right now for a primary degree correction here.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
In the very short term, volume is slightly bullish. This may support the hourly Elliott wave count, which expects a little more upwards movement to begin next week.
Strongest volume for most recent days is still for Thursday’s downwards day; there is more support for recent downwards movement than for upwards movement.
If On Balance Volume breaks below the next yellow support line, that would offer a reasonable bearish signal, but not a very strong one.
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 between price and inverted VIX for Friday’s session.
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. This has been so for all major bear markets within the last 90 odd years. 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.
Short term bullish divergence noted in last analysis has now been followed by a green daily candlestick. It may now be resolved, or it may need one more upwards day to resolve it. There is no new divergence for Friday between price and the AD line.
Lowry’s measures of internal market strength and health continue to show a healthy bull market. While the bull market overall remains healthy, there are signs at the end of this week of some short term weakness which may indicate a pullback to develop here. This supports the labelling of the Elliott wave count at the daily chart level.
Historically, almost every bear market is preceded by at least 4-6 months of divergence with price and market breadth. There is no divergence at all at this time. This strongly suggests this old bull market has at least 4-6 months to continue, and very possibly longer.
DOW THEORY
The S&P500, DJIA, DJT and Nasdaq have all made new all time highs.
Modified Dow Theory (adding in technology as a barometer of our modern economy) sees all indices confirming the ongoing bull market.
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.
Published @ 12:50 a.m. EST on 29th July, 2017.
Hourly chart updated:
Price still neatly within the channel. We need to see it break down out of the channel for earliest indication that P4 may have arrived.
So for now the alternate remains entirely valid and looks also okay.
Sometimes price extremes in markets persist for so long one is tempted to conclude that the principle of reversion to the mean has been suspended, if not slain outright. I am seeing price extremes everywhere that are mind-boggling and Dillards ( DDS) has been a great example. Upper BB penetration has been one of my favorite bread and butter trades for some time now, but strangely enough, of late it is not at all uncommon to see price penetrate, and then stay pinned to upper B bands for weeks at a time. This, at least for me, is an entirely new phenomenon, at least for instruments I have traded in the past. It is difficult to attribute this to merely bullish sentiment. Some instances in which I have been seeing this borders on insanity, considering the stocks that are exhibiting this upper BB tenacity. While we cannot know with certitude WHEN reversion to the mean will occur, we can be assured that it eventually WILL occur.
My trade in what I think should be a 50 dollar stock has been a battle of wills for weeks, with my rolling positions forward as DDS absolutely refused to surrender the upper B band. Well, today it did. As someone said, the higher they climb, the harder they fall. The bearish engulfing candle put in by DDS today has to be one of the more spectacular I have seen in some time, with a ten handle range from high to low. All the high flying stocks displaying what seems to be endless parabolic rises will ALL end the same way as DDS -they will surrender those gains a lot faster than they were garnered. I think the way these market extremes we are seeing are eventually going to be resolved with head-spinning rapidity, commensurate with how long the insanity has lasted. You can benefit from my weeks of sweating this one out! 🙂
Another peculiar thing about market behaviour of late has been the plethora of, for lack of a better description, what I would call “false flags”.
While dojis are not always explicitly a reversal signal, it is rare to not see a price reversal when they occur at the time of a 2 standard deviation as is the case when price moves above the upper BB. It is all the more remarkable that in the chart of DDS above there were not one, but two such instances of dojis being printed, yet price continuing to move higher. I have been seeing this kind of price action with increasing frequency of late and it really makes me wonder if it is either algos or manual trades against a well-known normally bearish reversal signal. I seriously doubt it is mere co-incidence.
Here is the interesting thing. My assumption in these cases is that the reversal signal is real, and the continued move higher is artificial and contrived, which if true, means whoever is pumping the stock is going to have to unwind sooner or later due the stock’s inherent weakness. It then becomes a matter of a waiting game to spot the point of capitulation as took place today in Dillards. You can really turn the tables on these ambush trades when you spot the exit as took place today. I figured out they were heading for the exits when price came down from 83 to 79.
It has a long way to fall.
BTW, the 79 in DDS filled the open gap from this morning…confirming the exhaustion gap (but of course you knew that!) 🙂
Thank you very much for the comments Verne on Dillards.
I’ll post a classic TA chart of this stock later, in comments of next analysis. Which I’m writing now.
Most welcome Lara! Looking forward to your chart! 🙂
RUT has broken resistance at the 1426 level–this is enough confirmation for me that this pullback will be deeper than current levels and probably the start of P4. Unless we see a quick reversal, I expect a nosedive in the coming weeks for RUT to 1370-1415, which could coincide with 2405-2450 for SPX.
After the window dressing may get another move down.
I agree. Pretty sustained reversal today from 1421 back to 1426, but that’s not unexpected. The 1426 level looks to be offering resistance now, which should remain the case until the next leg down.
KSS appears to be coming to its senses today; not too late to take advantage…. 🙂
The average for the S&P 500 is $231 per year since 2009
2009 $212
2010 $141
2011 (same price Flat $1258)
2012 $167
2013 $422
2014 $213
2015 ($15)
2016 $200
This Year the market is up $220 from open to current price points.
Currently the US economy is improving, an attempt to go higher by end of year seems possible.
Pullbacks in this market have consistently surprised by being more brief than expected.
One thing that has been giving this likelihood away is the failure of VIX BBs to expand significantly during these corrections. In every recent case even the briefest penetration of the upper BB has resulted in a market reversal with prices moving higher. Despite the fact that we are now expecting a larger correction, I think this is going to have to be confirmed by VIX BB expansion to contain upward movement of price. A failure of the BBs to expand to accommodate rising price may again be an early clue as to the brevity of the current expected correction.
Looking for gaps open this morning to be filled today….
Thanks!
I have to say I completely agree that the upward movement on Friday was a bit deep for a fourth wave and did appear to me indeed be a second wave underway as per your week-end analysis. I am curious about how DJI and SPX will ultimately get in sync as the former did post a new ATH. Hope you enjoy a relaxing week-end and thanks again for the early analysis!
Have a great weekend too Verne.
I’m up in the far north today, checking out a world class left hand point break, Ahipara (Shipwreck Bay). Possibly considering coming up to live here…. except today it’s flat.
Sounds fun! Your mention of Shipwreck Bay reminds me of a very popular dive site in the BVI – the wreck of RMS Rhone off Salt Island that went down in a hurricane October 29 1867. An amazing ecosystem has flourished around the wreck and it is one of the most popular places to dive in the BVI. Hopefully you and Cesar can visit one of these days! I hear the waves are also great on the North End in Tortola. 🙂
I also hear that BVI have great waves, and yes, one day we would just love to visit. Surf warm water… that’d be nice 🙂