The alternate hourly wave count was indicated as correct early in the session when price made a new high above 2,462.59.
A bounce was expected for Thursday’s session and this is exactly what happened.
A little downwards movement to below 2,340.51 but not below 2,336.45 was expected during Friday’s session.
Price did move lower, but it made a slight new low below 2,336.45, which was not expected.
A short term pullback was expected. Price has not moved lower, but moved higher in a small inside day.
A bounce was expected short term for Monday / Tuesday but did not turn up on Monday.
The mid term target at 2,000 was met and exceeded by 8.32 points.
Downwards movement was again expected for the session and again failed to materialise.
Summary: Price is persistently weak but no trend change is yet indicated. Earliest confidence in a trend change would come with a new low below 2,085.36. A breach of the large black channel on the daily chart would provide further confidence. Finally, a new low below 2,025.91 would provide confirmation.
Last published monthly charts are here.
New updates to this analysis are in bold.
BEAR ELLIOTT WAVE COUNT
The box is added to the weekly chart. Price has been range bound for months. A breakout will eventually happen. The S&P often forms slow rounding tops, and this looks like what is happening here at a monthly / weekly time frame.
Primary wave 1 is seen as complete as a leading expanding diagonal. Primary wave 2 would be expected to be complete here or very soon indeed.
Leading diagonals are not rare, but they are not very common either. Leading diagonals are more often contracting than expanding. This wave count does not rely on a rare structure, but leading expanding diagonals are not common structures either.
Leading diagonals require sub waves 2 and 4 to be zigzags. Sub waves 1, 3 and 5 are most commonly zigzags but sometimes may appear to be impulses. In this case all subdivisions fit perfectly as zigzags and look like threes on the weekly and daily charts. There are no truncations and no rare structures in this wave count.
The fourth wave must overlap first wave price territory within a diagonal. It may not move beyond the end of the second wave.
Leading diagonals in first wave positions are often followed by very deep second wave corrections. Primary wave 2 would be the most common structure for a second wave, a zigzag, and fits the description of very deep. It may not move beyond the start of primary wave 1 above 2,134.72.
Price may find resistance at the lilac trend line if it continues higher.
So far primary wave 2 would be a 0.95 correction of primary wave 1. Second wave corrections following first wave leading diagonals are commonly very deep, so this fits the most common pattern if primary wave 1 was a leading diagonal.
The most common structure for a second wave correction is a zigzag.
There is still no Fibonacci ratio between intermediate waves (A) and (C).
Intermediate wave (C) must be a five wave structure. It may be either an impulse or an ending diagonal. It would be unfolding as an impulse, not a diagonal. The structure may be complete, but as yet there is no evidence of a trend change.
Draw a channel about primary wave 2 using Elliott’s technique for a correction: the first trend line from the start of the zigzag, then a parallel copy on the end of intermediate wave (A). When this channel is breached by downwards movement it would be indicating a possible trend change. A new low below 2,025.91 would provide price confirmation of a trend change. At that stage, downwards movement could not be a second wave correction within intermediate wave (C) and so intermediate wave (C) would have to be over.
The targets calculated are provisional only because at the end of this session there is no confirmation of a trend change. They come with the caveat that price may yet move higher which means the targets would move correspondingly higher. They also come with the caveat that at this very early stage a target for primary wave 3 may only be calculated at primary degree. When intermediate waves (1) through to (4) within primary wave 3 are complete, then the targets may change as they can be calculated at more than one wave degree. Primary wave 3 may not exhibit a Fibonacci ratio to primary wave 1.
The first target at 1,593 is where primary wave 3 would reach 1.618 the length of primary wave 1. This target would most likely not be low enough because primary wave 2 is very deep at 0.95 the length of primary wave 1. Primary wave 3 must move below the end of primary wave 1, and it must move far enough below to allow subsequent room for primary wave 4 to unfold and remain below primary wave 1 price territory. Normally, there is a gap between first wave and fourth wave price territory, particularly in a bear market.
The next target may be more likely. At 1,269 primary wave 3 would reach 2.618 the length of primary wave 1.
If primary wave 3 does not exhibit a Fibonacci ratio to primary wave 1, then neither of these targets would be correct.
Well before these targets, it should be obvious if the next wave down is a primary degree third wave. It should exhibit increasing ATR, strong momentum, and a steep slope. However, please note that although it may begin very strongly it does not have to. It may also be that intermediate wave (1) maintains an ATR about 20 – 30 and has some deep time consuming corrections within it. That was how the last primary degree third wave began within the last bear market, so it may happen again.
The hourly chart shows the whole structure of intermediate wave (C). This upwards movement is seen as a five wave impulse for all wave counts, so this one hourly chart will suffice for both bear and the bull wave count. The degree of labelling only would be different.
A five wave impulse upwards from the low labelled intermediate wave (B) on 19th of May may now be complete, but the fifth wave may also continue higher.
This wave count at the hourly chart level agrees with MACD. The strongest piece of movement is the third wave. The fifth wave exhibits weaker momentum and divergence with MACD.
Minor wave 3 is 3.05 points longer than 1.618 the length of minor wave 1. If minor wave 5 is over at today’s high, then it would be 1.41 points longer than equality in length with minor wave 1.
The first indication of a potential trend change would come with a breach of the blue channel containing intermediate wave (C). Along the way down, expect to see some support, and a bounce, at the cyan bear market trend line.
A new low below 2,085.36 could not be a second wave correction within minor wave 5, so at that stage minor wave 5 would have to be over. This price point needs only to be passed by any amount at any time frame.
Thereafter, the same rule is used for the confirmation point at 2,025.91. A new low by any amount at any time frame below this point could not be a second wave correction within intermediate wave (C), so at that stage intermediate wave (C) would have to be over.
To the upside, price may find resistance at the lilac trend line now. It looks like today this line may be stopping price from moving any further.
BULL ELLIOTT WAVE COUNT
Cycle wave IV is seen as a complete flat correction. Within cycle wave IV, primary wave C is still seen as a five wave impulse.
Intermediate wave (3) has a strong three wave look to it on the weekly and daily charts. For the S&P, a large wave like this one at intermediate degree should look like an impulse at higher time frames. The three wave look substantially reduces the probability of this wave count. Subdivisions have been checked on the hourly chart, which will fit.
Cycle wave II was a shallow 0.41 zigzag lasting three months. Cycle wave IV may be a complete shallow 0.19 regular flat correction, exhibiting some alternation with cycle wave II and lasting nine months. Cycle wave IV would be grossly disproportionate to cycle wave II, and would have to move substantially out of a trend channel on the monthly chart, for it to continue further sideways as a double flat, triangle or combination. For this reason, although it is possible, it looks less likely that cycle wave IV would continue further. It should be over at the low as labelled.
At 2,500 cycle wave V would reach equality in length with cycle wave I.
Price has now broken a little above the bear market trend line. This line is drawn from the all time high at 2,134.72 to the swing high labelled primary wave B at 2,116.48 on November 2015. This line is drawn using the approach outlined by Magee in the classic “Technical Analysis of Stock Trends”. To use it correctly we should assume that a bear market remains intact until this line is breached by a close of 3% or more of market value. Now that the line is breached, the price point at which it is breached is calculated about 2,093.58. 3% of market value above this line would be 2,156.38, which would be above the all time high and the confirmation point.
This wave count requires price confirmation with a new all time high above 2,134.72.
While price has not made a new high, while it remains below the final trend line (lilac) and while technical indicators point to weakness in upwards movement, this very bullish wave count comes with a strong caveat. I still do not have confidence in it. It is produced as an alternate, because all possibilities must be considered. Price managed to keep making new highs for years on light and declining volume, so it is possible that this pattern may continue to new all time highs for cycle wave V.
The invalidation point will remain on the weekly chart at 1,370.58. Cycle wave IV may not move into cycle wave I price territory.
This invalidation point allows for the possibility that cycle wave IV may not be complete and may continue sideways for another one to two years as a double flat or double combination. Because both double flats and double combinations are both sideways movements, a new low substantially below the end of primary wave C at 1,810.10 should see this wave count discarded on the basis of a very low probability long before price makes a new low below 1,370.58.
Intermediate wave (2) may still be an incomplete flat correction. Minor wave A will subdivide as a three, a double zigzag, and minor wave B may be seen as a single zigzag.
The most likely point for intermediate wave (2) to end would be the 0.618 Fibonacci ratio at 1,920.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,810.10.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Price is the final determinator and the most important aspect of market analysis. So what has price been doing since the all time high in May 2015?
Price today has made an important new high above the prior major high of November 2015. Price is now finding resistance at the lilac line. It can no longer be said that price is making lower highs and lower lows because it no longer has a lower high. This is the most bullish indication from price for many months.
Last week completes a small doji pattern with lighter volume. This represents a balance between bulls and bears for the week and indecision. The long lower wick is slightly bullish while the red colour is slightly bearish.
On Balance Volume no longer shows divergence with price: from the high in November 2015 to the high in April 2016 both OBV and price have now made new highs. The weakness up until today though still did exist.
Volume is declining while price has essentially moved sideways for the last ten weeks in a zone delineated by brown trend lines. The longer price meanders sideways the closer a breakout will be. During this sideways range, it is a downwards week which has strongest volume suggesting a downwards breakout may be more likely.
The strong green candlestick two weeks ago the most bullish signal for some time. With this now followed by a doji, some of this bullishness is dissipated.
The 40 week moving average has turned upwards, another bullish signal. However, this has happened before in October 2015 yet it was followed by a strong downwards wave. On its own this bullish signal does not necessarily mean price is going to make new all time highs.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume data on StockCharts is different to that given from NYSE, the home of this index. Comments on volume will be based on NYSE volume data when it differs from StockCharts.
Some small increase in volume for today’s session offers some support for the rise in price. Volume, however, remains relatively light: during the last seven sessions it is still two downwards days which have strongest volume.
ADX still indicates an upwards trend is in place. ATR still disagrees. There is still something wrong with this trend; a sustainable trend should not come with declining daily range.
More data is shown today on the chart. On Balance Volume trend lines are redrawn. The purple line is essentially the same, so a break below it would be a strong bearish indicator. The yellow line is redrawn. This line is repeatedly tested, so it offers reasonable technical significance. A break above this line would be a reasonable bullish signal.
There is divergence between price and RSI now. Price has made a new high above the prior swing high of 20th of April but RSI has failed to make a corresponding new high. This regular bearish divergence indicates weakness in price and exhaustion of bulls. Divergence between price and RSI is usually a fairly reliable indicator. It does not say price must turn down here, but it does indicate a trend change is very likely to occur either here or very soon.
There is also divergence over the last few days between price and Stochastics. Stochastics is flat and today declined while price has made important new highs. However, this divergence is not very reliable.
There is also strong divergence between price and MACD at the daily chart level. Again, this divergence between price and MACD is not always very reliable. It is one more small piece of the puzzle only.
VOLATILITY – INVERTED VIX MONTHLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Several instances of large divergence between price and VIX (inverted) are noted here. Blue is bearish divergence and yellow is bullish divergence (rather than red and green, for our colour blind members).
Volatility declines as inverted VIX rises, which is normal for a bull market. Volatility increases as inverted VIX declines, which is normal for a bear market. Each time there is strong multi month divergence between price and VIX, it was followed by a strong movement from price: bearish divergence was followed by a fall in price and bullish divergence was followed by a rise in price.
The divergence noted yesterday between price and VIX is no longer evident with the hew high today above November 2015. There is still current multi month divergence between price and VIX: from the high in April 2016 price has made new highs in the last few days but VIX has failed so far to follow with new highs. This regular bearish divergence still indicates weakness in price.
VOLATILITY – INVERTED VIX DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There is now only one instance of hidden bearish divergence noted on this daily chart of price and VIX (blue lines). VIX makes higher highs as price makes lower highs. The decline in volatility is not matched by a corresponding rise in price. Price is weak.
There is also very short term regular bearish divergence (pink lines). VIX did not make a corresponding new high as price made a new high in the last two days. This indicates exhaustion for bulls and underlying weakness in price.
Now price has moved higher for two days in a row completing green daily candlesticks yet VIX has moved lower. This short term divergence between price and VIX is unusual. It indicates further exhaustion from bulls. This trend in price is weak, especially for the last two days.
While I would not give much weight to divergence between price and many oscillators, such as Stochastics, I will give weight to divergence between price and VIX. Analysis of the monthly chart for the last year and a half shows it to be fairly reliable.
BREADTH – ADVANCE DECLINE LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
With the AD line increasing, this indicates the number of advancing stocks exceeds the number of declining stocks. This indicates that there is breadth to prior upwards movement.
The hidden bearish divergence noted up to two days ago between price and the AD line no longer is evident with price now making new highs. The fact remains that it did exist though up until two days ago. Until two days ago price was exhibiting weakness in relation to market breadth.
The last major lows within the bull market are noted below. Both the industrials and transportation indicies have closed below these price points on a daily closing basis; original Dow Theory has confirmed a bear market. By adding in the S&P500 and Nasdaq a modified Dow Theory has not confirmed a new bear market.
Within the new bear market, major highs are noted. For original Dow Theory to confirm the end of the current bear market and the start of a new bull market, the transportation index needs to confirm. It has not done so yet.
Major lows within the prior bull market:
DJIA: 15,855.12 (15th October, 2014) – closed below on 25th August, 2015.
DJT: 7,700.49 (12th October, 2014) – closed below on 24th August, 2015.
S&P500: 1,821.61 (15th October, 2014) – has not closed below this point yet.
Nasdaq: 4,117.84 (15th October, 2014) – has not closed below this point yet.
Major highs within the new bear market:
DJIA: 17,977.85 (4th November, 2015) – closed above on 18th April, 2016.
DJT: 8,358.20 (20th November, 2015) – has not closed above this point yet.
S&P500: 2,116.48 (3rd Nobember, 2015) – has not closed above this point yet.
Nasdaq: 5,176.77 (2nd December, 2015) – has not closed above this point yet.
It is a reasonable conclusion that the indices are currently in a bear market. The trend remains the same until proven otherwise. Dow Theory is one of the oldest and simplest of all technical analysis methods. It is often accused of being late because it requires huge price movements to confirm a change from bull to bear. In this instance, it is interesting that so many analysts remain bullish while Dow Theory has confirmed a bear market. It is my personal opinion that Dow Theory should not be accused of being late as it seems to be ignored when it does not give the conclusion so many analysts want to see.
This analysis is made public today for promotional reasons. Member comments and discussion below will remain private.
This analysis is published @ 09:08 p.m. EST.
[Note: Analysis is public today for promotional purposes. Member comments and discussion will remain private.]
This analysis offers detail of how subdivisions are seen within the last bull market which was from March 2009 to May 2015.
More downwards movement was expected for Thursday’s session, which is what happened.
Downwards movement was expected from the main Elliott wave count.
Downwards movement has invalidated the main hourly Elliott wave count, but is not yet enough to confirm the alternate wave count. What happens tomorrow is crucial.
Summary: Price is right at the lower blue 2-4 trend line on the main daily wave count. For the main wave count upwards movement must resume tomorrow. If that trend line is breached I must discard the main wave count. The alternate wave count now requires a new low below 2,039.69.
Click charts to enlarge.
Bullish Wave Count
Upwards movement from the low at 666.79 subdivides as an incomplete 5-3-5. For the bull wave count this is seen as primary waves 1-2-3.
The aqua blue trend lines are traditional technical analysis trend lines. These lines are long held (the lower one has its first anchor in November, 2011), repeatedly tested, and shallow enough to be highly technically significant. When the lower of these double trend lines is breached by a close of 3% or more of market value that should indicate a substantial trend change. It does not indicate what degree the trend change should be though. It looks like the last five corrections may have ended about the lower aqua blue trend line, which gives the wave count a typical look. To see a weekly chart where I have drawn these trend lines click here.
Today, downwards movement is finding support at the upper of the double aqua blue trend lines. This is very likely to be the low for minuette wave (iv), and the final fifth wave should begin tomorrow from here.
The wave count sees intermediate wave (5) as an ending contracting diagonal. Ending diagonals require all sub waves to be zigzags. So far this is a perfect fit. Minor wave 3 has stronger momentum than minor wave 5 on the daily chart.
The diagonal is contracting. The only problem with this possibility is that minor waves 2 and 4 are more shallow than second and fourth waves within diagonals normally are. In this case they may have been forced to be more shallow by support offered from the double aqua blue trend line.
Because the third wave within the contracting diagonal is shorter than the first wave and a third wave may never be the shortest wave, this limits the final fifth wave to no longer than equality with the third wave at 2,253.79.
Within intermediate wave (5) minor wave 1 lasted 238 days (5 days longer than a Fibonacci 233), minor wave 2 lasted 18 days (2 short of a Fibonacci 21), minor wave 3 lasted 51 days (4 short of a Fibonacci 55) and minor wave 4 lasted 23 days (2 longer than a Fibonacci 21). While none of these durations are perfect Fibonacci numbers, they are all reasonably close. So far minor wave 5 has lasted 35 days and the structure looks incomplete. Minor wave 5 may not exhibit a Fibonacci duration. Within it minute wave c will total a Fibonacci 13 if it ends in four more sessions.
Within minor wave 5 minute wave b may not move beyond the start of minute wave a below 1,980.90.
Contracting diagonals normally have fifth waves which end with a slight overshoot of the 1-3 trend line. Because this is such a common tendency I will still expect more upwards movement to see this trend line overshot. It is possible that the fifth wave is over already, and this idea is presented as an alternate.
Diagonals almost always adhere well to their trend lines. This one has slight overshoots within minute wave a of minor wave 3, but the 1-3 trend line is not breached. For this diagonal to have the “right look” minute wave c must continue upwards from here. A breach of the lower blue 2-4 trend line would see this wave count substantially reduced in probability in favour of the alternate below.
At 2,178 minute wave c would reach equality in length with minute wave a.
If this wave count is correct then downwards movement cannot be a fourth wave correction and must be a deep second wave correction. Minuette wave (i) is seen here as a five wave impulse, but this does not have as neat a fit as the alternate hourly wave count.
Minuette wave (ii) must end here and may not breach the blue 2-4 trend line on the daily chart.
This main wave count expects a third wave up to begin tomorrow.
Minuette wave (ii) may not move beyond the start of minuette wave (i) below 2,039.69.
Alternate Bullish Wave Count
This wave count is identical to the main wave count up to the low labelled minor wave 4. Thereafter, this alternate looks at the possibility that minor wave 5 may be over. Minor wave 5 would have fallen slightly short of the 1-3 trend line. This is unusual but does occasionally happen for fifth waves of contracting diagonals.
A new low below 1,980.90 would invalidate the main wave count. A close below the lower aqua blue trend line of 3% or more of market value would provide added confidence in this wave count. At that stage I would expect that downwards movement may be the early stages of primary wave 4. The bearish wave count below would also be entirely possible, but would require further confirmation.
Primary wave 2 was a 0.41 zigzag correction lasting 62 days in total. I would expect primary wave 4 to be more shallow because it may find support at the lower edge of an Elliott channel (which must be drawn on a weekly chart at this stage). Primary wave 4 should break out of the black channel copied over here from the weekly chart (this is a channel containing primary wave 3). A breach of that channel would provide further confidence that primary wave 3 is over and primary wave 4 is underway.
Primary wave 4 may last about a Fibonacci 55 days if it is a flat correction. If it is a combination or triangle it may be more time consuming, maybe up to a Fibonacci 89 days.
We should always assume the trend remains the same, until proven otherwise. At this early stage we have no confirmation of a big trend change, so this idea must remain an alternate until we do. We should assume the trend remains up.
The new downwards movement has an ambiguous first wave down, which may be seen as either a three or a five. It would most likely be a five because the first wave down is more likely to be an impulse than a leading diagonal.
This wave count expects a third wave down to continue tomorrow. At 1,986 minute wave iii would reach 1.618 the length of minute wave i.
Minute wave iii must move below the end of minute wave i at 2,039.69. A new low below this point would add substantial confidence to this alternate wave count at this stage.
Within minute wave iii minuette wave (i) would be incomplete. Minuette wave (ii) which should follow may not move beyond the start of minuette wave (i) above 2,114.86.
Bear Wave Count
The subdivisions within primary waves A-B-C are seen in absolutely exactly the same way as primary waves 1-2-3 for the bull wave count. The alternate bull wave count idea also works perfectly for this bear wave count.
To see the difference at the monthly chart level between the bull and bear ideas look at the last historical analysis here.
At cycle degree wave b is over the maximum common length of 138% the length of cycle wave a, at 167% the length of cycle wave a. At 2,393 cycle wave b would be twice the length of cycle wave a and at that point this bear wave count should be discarded.
While we have no confirmation of this wave count we should assume the trend remains the same, upwards. This wave count requires confirmation before I have confidence in it.
This analysis is published about 08:13 p.m. EST.