Some more downwards movement, at least for the start of the session, was expected. This is exactly what happened.

Summary: If price makes a new high above 2,743.19, then some confidence may be had that a low is in place. The target would be about 2,849 for the next consolidation.

If price makes a new low below 2,691.99, then it would look most likely to continue lower to end below 2,676.81. The target would be about 2,660 for the pullback to end.

The invalidation point must remain at 2,594.62.

The mid to longer term target is at 2,922 (Elliott wave) or 3,045 (classic analysis). Another multi week to multi month correction is expected at one of these targets.

The final target for this bull market to end remains at 3,616.

Pullbacks are an opportunity to join the trend.

Always practice good risk management. Always trade with stops and invest only 1-5% of equity on any one trade.

New updates to this analysis are in bold.

The biggest picture, Grand Super Cycle analysis, is here.

Last historic analysis with monthly charts is here, video is here.

ELLIOTT WAVE COUNT

WEEKLY CHART

Click chart to enlarge.

Cycle wave V must complete as a five structure, which should look clear at the weekly chart level and also now at the monthly chart level. It may only be an impulse or ending diagonal. At this stage, it is clear it is an impulse.

Within cycle wave V, the third waves at all degrees may only subdivide as impulses.

Intermediate wave (4) has breached an Elliott channel drawn using Elliott’s first technique. The channel is redrawn using Elliott’s second technique: the first trend line from the ends of intermediate waves (2) to (4), then a parallel copy on the end of intermediate wave (3). Intermediate wave (5) may end either midway within the channel, or about the upper edge.

Intermediate wave (4) may now be a complete regular contracting triangle lasting fourteen weeks, one longer than a Fibonacci thirteen. There is perfect alternation and excellent proportion between intermediate waves (2) and (4).

Within intermediate wave (5), no second wave correction may move beyond the start of its first wave below 2,594.62.

DAILY CHART

Click chart to enlarge.

It is possible that intermediate wave (4) is a complete regular contracting triangle, the most common type of triangle. Minor wave E may have found support just below the 200 day moving average and ending reasonably short of the A-C trend line. This is the most common look for E waves of triangles.

Intermediate wave (3) exhibits no Fibonacci ratio to intermediate wave (1). It is more likely then that intermediate wave (5) may exhibit a Fibonacci ratio to either of intermediate waves (1) or (3). The most common Fibonacci ratio would be equality in length with intermediate wave (1), but in this instance that would expect a truncation. The next common Fibonacci ratio is used to calculate a target for intermediate wave (5) to end.

Price has clearly broken out above the upper triangle B-D trend line. This indicates that it should now be over if the triangle is correctly labelled.

A trend line in lilac is added to this chart. It is the same line as the upper edge of the symmetrical triangle on the daily technical analysis chart. Price found support about this line.

Minor wave 1 may have been over at the last high. Minor wave 1 will subdivide as a five wave impulse on the hourly chart; the disproportion between minute waves ii and iv gives it a three wave look at the daily chart time frame. The S&P does not always exhibit good proportions; this is an acceptable wave count for this market.

It looks like minor wave 2 for this first daily wave count should be over here. The structure at lower time frames looks complete.

A target is calculated for minor wave 3 to end.

Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.

HOURLY CHART

Click chart to enlarge.

Minor wave 2 may now be a complete zigzag; all subdivisions fit for a 5-3-5 downwards. A best fit channel is drawn about this downwards movement. It must be accepted that while price remains within the channel the fifth wave of minuette wave (v) could extend lower, so the invalidation point must remain the same.

A breach of the channel would be the first indication that a low may be in place. A new high above 2,743.19 would provide confidence that a low should be in place.

Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.

ALTERNATE DAILY CHART

Click chart to enlarge.

It is possible that minor waves 1 and 2 are already over. The last high may have been minute wave i. Minute wave ii may need one more low to be complete.

Minute wave ii may not move beyond the start of minute wave i below 2,676.81.

This alternate wave count resolves the problem of an odd looking minor wave 1 for the main wave count. The only problem with this alternate wave count is minute wave ii is not contained within a base channel which would be drawn about minor waves 1 and 2.

This wave count is very bullish. It expects to see a very strong upwards movement as the middle of a third wave begins here.

SECOND ALTERNATE DAILY CHART

Click chart to enlarge.

It is also possible that minor wave 1 ended earlier and current downwards movement is the end of an expanded flat correction for minor wave 2.

The 0.618 Fibonacci ratio of minor wave 1 here would be about 2,660. This would be very slightly below the lower edge of the black Elliott channel and slightly below the 200 day moving average.

This second alternate wave count expects a somewhat deeper pullback about here to make a new low below the end of minute wave a at 2,676.81, so that minute wave c avoids a truncation and minor wave 2 avoids a running flat correction.

Minor wave 2 may not move beyond the start of minor wave 1 below 2,594.62.

SECOND ALTERNATE HOURLY CHART

Click chart to enlarge.

A zigzag subdivides 5-3-5, exactly the same as waves 1-2-3 of an impulse. The subdivisions for both wave counts are seen in the same way at the hourly chart level.

If an impulse is continuing lower, then within it minuette wave (iv) may not move into minuette wave (i) price territory above 2,743.19.

A new low below today’s low at 2,691.99 would put the first two daily wave counts in doubt; at that stage, expect downwards movement to most likely continue to end below 2,676.81, and the target would be about 2,660.

TECHNICAL ANALYSIS

WEEKLY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Last week’s spinning top candlestick pattern again signals a balance of bulls and bears. With volume not supporting downwards movement, it looks like bears may be tiring.

This chart is very bullish.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

The symmetrical triangle may now be complete. The base distance is 340.18. Added to the breakout point of 2,704.54 this gives a target at 3,044.72. This is above the Elliott wave target at 2,922, so the Elliott wave target may be inadequate.

Since the low on the 2nd of April, 2018, price has made a series of higher highs and higher lows. This is the definition of an upwards trend. But trends do not move in perfectly straight lines; there are pullbacks and bounces along the way. While price has not made a lower low below the prior swing low of the 29th of May, the view of a possible upwards trend in place should remain. Note though that the second alternate Elliott wave count allows for a new swing low yet expects a third wave upwards to begin from there. This is entirely possible.

On Balance Volume may be used as an early indicator of a low in place. If it gives a bullish signal with a break above the purple resistance line, then expect a low is in place.

While volume today does not support upwards movement within the session, this shall not be given much weight as low and declining volume is a feature of this bull market.

VOLATILITY – INVERTED VIX CHART

Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals
will be noted with blue and bullish signals with yellow.

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.

Inverted VIX has made a new high above the prior swing high of the 9th of March, but price has not made a corresponding new swing high about the same point yet. This divergence is bullish. Inverted VIX is still a little way off making a new all time high.

There is mid term bearish divergence between price and inverted VIX: inverted VIX has made a new swing low below the prior swing low of the 29th of May, but price has not. Downwards movement has strong support from increasing market volatility; this divergence is bearish. However, it must be noted that the last swing low of the 29th of May also came with bearish divergence between price and inverted VIX, yet price went on to make new highs.

This divergence may not be reliable. As it contradicts messages given by On Balance Volume and the AD line, it shall not be given much weight in this analysis.

There is no new divergence between inverted VIX and price today.

BREADTH – AD LINE

Click chart to enlarge. Chart courtesy of StockCharts.com.

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 longer term 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. New all time highs from the AD line means that any bear market may now be an absolute minimum of 4 months away. It may of course be a lot longer than that. My next expectation for the end of this bull market may now be October 2019.

Small caps and mid caps have both recently made new all time highs. It is large caps that usually lag in the latter stages of a bull market, so this perfectly fits the Elliott wave count. Expect large caps to follow to new all time highs.

Breadth should be read as a leading indicator.

There is no new divergence today between price and the AD line.

Overall, the AD line still remains mostly bullish as it has made more than one new all time high last week. Price may reasonably be expected to follow through in coming weeks.

DOW THEORY

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: 23,360.29.

DJT: 9,806.79.

S&P500: 2,532.69.

Nasdaq: 6,630.67.

Only Nasdaq at this stage is making new all time highs. DJIA and DJT need to make new all time highs for the ongoing bull market to be confirmed.

Charts showing each prior major swing low used for Dow Theory may be seen at the end of this analysis here.

Published @ 08:36 p.m. EST.