Bearish divergence noted in last analysis between price and breadth and price and volatility has been followed by a downwards day. This was expected.
Summary: The bigger picture sees the S&P now in a primary degree pullback to last a minimum of 8 weeks and find support at the maroon channel on the weekly chart.
Watch the upper blue trend line on the main hourly chart carefully. If price breaks above it, then look for upwards movement to end somewhere in the zone of 2,466 to 2,477. A new high above 2,453.71 would provide price confidence in this view.
However, the short term trend remains the same (down) until proven otherwise. Assume new lows are ahead while price remains below the blue trend line.
The short term target for a third wave down is still at 2,389.
If price moves above 2,474.93, then use the alternate hourly chart.
Last monthly and weekly charts are here. Last historic analysis video is here.
ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Primary wave 3 now looks complete. Further and substantial confidence may be had if price makes a new low below 2,405.70, which is the start of minor wave 5 within intermediate wave (5). A new low below 2,405.70 may not be a second wave correction within an extending fifth wave, so at that stage the final fifth wave must be over. Fibonacci ratios are calculated at primary and intermediate degree. If primary wave 3 is complete, then it still 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. So far it has lasted only two weeks.
If primary wave 4 reaches down to the lower edge of the Elliott channel, it may end about 2,325. This is within the 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.
The final target for Grand Super Cycle wave I to end is at 2,500 where cycle wave V would reach equality in length with cycle wave I. 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 will now focus in on the unfolding structure of primary wave 4.
Primary wave 2 was a regular flat correction lasting 10 weeks. Given the guideline of alternation, primary wave 4 may most likely be a single or double zigzag. Within both of those structures, a five down at the daily chart level should unfold. At this stage, that looks incomplete.
While primary wave 4 would most likely be a single or double zigzag, it does not have to be. It may be a combination or triangle and still exhibit structural alternation with primary wave 2. There are multiple structural options available for primary wave 4, so it is impossible for me to tell you with any confidence which one it will be. It will be essential that flexibility is applied to the wave count while it unfolds. Multiple alternates will be required at times, and members must be ready to switch from bear to bull and back again for short term swings within this correction.
While intermediate wave (A) is labelled as an unfolding impulse, it may also be a diagonal. Both structures are considered at the hourly chart level.
Intermediate wave (A) may also be a zigzag if primary wave 4 is to be a triangle. So far it is possible a zigzag downwards could be complete, but it is not deep enough for wave A of a triangle when it is viewed on the weekly chart. And so that possibility will not be considered at this time.
MAIN HOURLY CHART
Click chart to enlarge.
Minor wave 1 downwards looks very clear as a five wave structure.
Minor wave 2 upwards ended just above the 0.618 Fibonacci ratio. Minor wave 3 downwards has now made a new low below the end of minor wave 1, meeting the Elliott wave rule.
Minor wave 3 now exhibits slightly stronger momentum than minor wave 1. A further increase in downwards momentum would be expected.
Minuette wave (i) will fit as a leading contracting diagonal. Minuette wave (ii) may now be a completed deep zigzag.
Another leading contracting diagonal may have completed today for subminuette wave i. Subminuette wave ii may not move beyond the start of subminuette wave i above 2,453.71.
If price moves higher above the upper edge of the base channel, then the alternate below should be preferred as soon as that trend line is breached and before the invalidation point is passed.
The target expects minor wave 3 to be an extension. When third waves extend, they do so both in price and time. They often show their subdivisions at higher time frames, which is why minute waves ii and iv may show up on the daily chart.
Minute wave iii may also be extending; it is common for the middle of third waves to extend and be stretched out. With minute wave iii extending, it too may show its subdivisions at the daily chart level.
ALTERNATE HOURLY CHART
Click chart to enlarge.
If the base channel on the main hourly chart is breached by upwards movement, use this alternate.
The other possible structure for intermediate wave (A), if it is to be a five, would be a leading diagonal. These are not as common as impulses, so this must be an alternate wave count judged to have a lower probability than the main wave count. However, low probability does not mean no probability. All possibilities should be considered.
Within leading diagonals, the first, third and fifth waves are most commonly zigzags. They may also appear to be impulses. Here, minor wave 1 will fit as a zigzag.
Second and fourth waves must be zigzags. Minor wave 2 may not move beyond the start of minor wave 1 above 2,490.87.
Sideways movement of the last four sessions fits well as a triangle. This is supported by MACD hovering about zero. So far the triangle adheres well to its trend lines; this looks correct. If a triangle is unfolding as it is labelled here, then the breakout should be upwards.
Second and fourth waves within diagonals are usually very deep; a range is given for the common depth.
Minor wave 3 would have to move below the end of minor wave 1 at 2,417.35. Minor wave 3 downwards of a leading diagonal should still exhibit an increase in downwards momentum and should still have support from volume.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Last week has made a lower low and lower high, but the candlestick closed green and the balance of volume was upwards. Lighter volume does not support the rise in price during the week.
ADX had been extreme for a long time and is now declining. The black ADX line is now declining but has not yet been pulled down below both directional lines, so the consolidation or pullback may be expected to continue.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
For the last four sessions, price has been moving sideways and volume overall has been declining. A small pennant pattern may be forming. But volume is strongest on a downwards day within this small consolidation suggesting a downwards breakout is more likely. However, the pennant pattern suggests an upwards breakout.
A target using the measured rule for the possible pennant would be about 2,487.
On Balance Volume suggests that any upwards movement may be limited. Watch On Balance Volume carefully over the next few days. A breakout there may indicate the next direction for price.
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.
Bearish divergence noted in last analysis between price and inverted VIX has now been followed by one downwards day. It may now be resolved, or it may need one more downwards day to resolve it. There is no new divergence today.
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 bearish divergence noted in last analysis has now been followed by one downwards day. It may be resolved here or it may need one more downwards day to resolve it. There is no new divergence today between price and the AD line.
DOW THEORY
The S&P500, DJIA, DJT and Nasdaq have all made new all time highs recently.
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 @ 09:50 p.m. EST.
[Note: Analysis is public today for promotional purposes. Member comments and discussion will remain private.]
Continue reading S&P 500 Elliott Wave Technical Analysis – 28th August, 2017 →
