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Lara's Weekly Masthead

S&P 500

Another downwards day remains above the invalidation point on the main Elliott wave count. Two alternate Elliott wave counts are published for members today.

Summary: With the data in hand, it still looks like a low may more likely be in place. This view has support from mid-term bullish divergence between price and both of the AD line and inverted VIX, with short-term divergence between price and both of RSI and Stochastics, and a bullish candlestick reversal pattern at the last low. The target remains at 3,070 for this bull market to end next year, either in March or October.

Two alternate Elliott wave counts allow for more downwards movement here for the short term. If price makes a new low below 2,583.23, then it is possible a low may be found very quickly. If not, then the target for the end of primary wave 4 would be about 2,478.

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

Last published monthly chart is here, video is here.

MAIN ELLIOTT WAVE COUNT

WEEKLY CHART

S&P 500 Weekly 2018
Click chart to enlarge.

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

Within primary wave 3, there is perfect alternation and excellent proportion between intermediate waves (2) and (4).

Draw the teal channel from the high of cycle wave I at 1,343.80 on the week beginning 3rd July 2011, to the high of cycle wave III at 2,079.46 on the week beginning 30th November 2014, and place a parallel copy on the low of cycle wave II at 1,074.77 on the week beginning 2nd October 2011. Draw this chart on a semi-log scale. A small overshoot, like that seen at the end of cycle wave IV, would be entirely acceptable.

The channel has now been overshot twice at the end of primary wave 4. This is acceptable. If this wave count is correct, then a breach of this channel would be unlikely. A breach may be defined as a full weekly candlestick below and not touching the lower trend line.

This wave count has the right look at the monthly chart level.

If primary wave 5 ends at or after the end of December 2018 and the AD line fails to make new all time highs, there would then be the minimum required four months of bearish divergence between price and the AD line. If this happens, then the conditions for the end of this bull market would be in place.

Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.

Three daily charts are published.

DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

Primary wave 4 may be a complete single zigzag.

Within the zigzag, intermediate wave (C) must subdivide as a five wave structure. It may be a complete ending contracting diagonal.

Within the ending diagonal, all sub-waves must subdivide as zigzags, minor wave 4 must overlap minor wave 1 price territory, and minor wave 4 may not move beyond the end of minor wave 2 above 2,800.18.

Minor wave 5 may have ended with an overshoot of the 1-3 trend line.

If primary wave 5 were to only reach equality in length with primary wave 1, it would be truncated. The next Fibonacci ratio in the sequence is used to calculate a target.

Within primary wave 5, minor wave 2 may not move beyond the start of minor wave 1 below 2,583.23.

FIRST ALTERNATE DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

The other possible structure for intermediate wave (C) would be a simple impulse. If intermediate wave (C) is unfolding as an impulse, then it may now have three first and second waves complete. This wave count would expect to see an increase in downwards momentum as the middle of a third wave unfolds.

Within minute wave iii, minuette wave (ii) may not move beyond the start of minuette wave (i) above 2,709.21.

This wave count would expect to see a very large breach of the teal trend channel on the weekly chart. This has not happened during the life of this trend channel.

The S&P commonly forms slow curving rounded tops. When it does this, it can breach channels only to continue on to make new all time highs. When it breaches upwards channels and then continues onwards, price often will find resistance at the lower edge of the channel. It is possible that Super Cycle wave I may end in this way.

SECOND ALTERNATE DAILY CHART

S&P 500 Daily 2018
Click chart to enlarge.

While the first two daily charts consider primary wave 4 as a single zigzag, this second daily alternate chart considers primary wave 4 as a double zigzag.

The first zigzag in the double is complete and labelled intermediate wave (W). The double is joined by a complete three in the opposite direction, a zigzag labelled intermediate wave (X). The second zigzag in the double may be incomplete, which is labelled intermediate wave (Y).

Within the second zigzag of intermediate wave (Y), minor waves A and B may be complete. Minor wave B is labeled as a possible double combination. All subdivisions fit perfectly, but this structure has a downwards slope. Double combinations are fairly common structures, but they normally have a sideways look. This one does not. However, the S&P does not always have normal looking structures. This is an acceptable alternate wave count for this market.

This wave count allows for a very little more downwards movement to a new low next week, followed by a quick reversal. This wave count would expect to see the teal trend channel overshot by next week’s weekly candlestick but not properly breached.

TECHNICAL ANALYSIS

WEEKLY CHART

S&P 500 weekly 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

The strongest volume for recent weeks is for the upwards week beginning 29th of October. This short-term volume profile at this time frame is bullish.

For a more bearish outlook a bearish signal from On Balance Volume would be preferred.

The last weekly candlestick has a bearish long upper wick, but it has a smaller real body and has not moved price substantially lower.

DAILY CHART

S&P 500 daily 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

The lower edge of the teal trend channel is not shown on this chart, but it should be considered as part of this technical analysis. Expect that trend line to continue to provide support, until it does not.

A downwards trend ended on the 29th of October and a sideways consolidation began on that date. Price is bound with resistance above about 2,800 – 2,815 and final support below about 2,630 – 2,580. It is four upwards days during this consolidation that have strongest volume. This suggests an upwards breakout is more likely than downwards. This technique does not always work, but it works more often than it fails. In this instance, because the number of days in agreement is four, it has a little more confidence.

While volume has slightly increased on Friday for a downwards day, volume is still weaker than previous upwards days.

The signal from On Balance Volume is very weak because the line breached had only the minimum two anchor points and was very short.

There is still bullish divergence between price and both of RSI and Stochastics.

BREADTH – AD LINE

WEEKLY CHART

AD Line daily 2018
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.

There is mid-term bullish divergence between price and the AD line. This week price has made new lows below the prior low of the week beginning the 30th of April, but the AD line has not. This indicates that downwards movement does not have support from a corresponding decline in market breadth; there is some weakness within price.

DAILY CHART

AD Line daily 2018
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.

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 on the 29th of August means that the beginning of any bear market may be at the end of December 2018, but it may of course be a lot longer than that.

Breadth should be read as a leading indicator.

On Friday the AD line has made a new low below the prior low of 10th of December, but price has not. This divergence is bearish for the short term and supports either alternate Elliott wave count.

Nearing the end of this bull market, to the end of primary wave 5, bearish signals from the AD line may begin to accumulate.

VOLATILITY – INVERTED VIX CHART

WEEKLY CHART

VIX daily 2018
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.

This week price has made a new low below the prior swing low, but inverted VIX has not. This divergence is bullish and indicates downwards movement this week does not come with a normal corresponding increase in VIX.

DAILY CHART

VIX daily 2018
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.

Like the AD line, inverted VIX may now begin to accumulate instances of bearish signals or divergence as a fifth wave at three large degrees comes to an end.

Downwards movement in price for Friday has a normal corresponding increase in VIX. VIX is not increasing any faster than price is falling. There is no divergence.

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:

DOW JONES INDUSTRIAL AVERAGE

DJIA 2018
Click chart to enlarge.

DJIA: 23,344.52.

DOW JONES TRANSPORTATION AVERAGE

DJT 2018
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DJT: 9,806.79 – price has closed below this point on the 13th of December.

S&P500

SPX 2018
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S&P500: 2,532.69.

NASDAQ

Nasdaq 2018
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Nasdaq: 6,630.67.

GOLD

A pullback was expected to end about 1,235. Downwards movement for Friday reached 1,232.98 and then quickly reversed.

Summary: The upwards trend may now resume. The mid-term target is 1,295.

The final target for this bounce to end is about 1,305 – 1,310.

Grand SuperCycle analysis is here.

Last historic analysis with monthly charts is here.

There are four remaining weekly wave counts at this time for cycle wave b: a triangle, a flat, a combination, and a double zigzag.

At this time, the Triangle wave count may again be slightly more likely.

MAIN ELLIOTT WAVE COUNT

WEEKLY CHART – TRIANGLE

Gold Elliott Wave Chart Weekly 2018
Click chart to enlarge.

Cycle wave b may be an incomplete regular contracting triangle. Primary wave E may not move beyond the end of primary wave C above 1,365.68.

Within primary wave E, intermediate waves (A) and (B) may be complete. Intermediate wave (C) must subdivide as a five wave structure. Within intermediate wave (C), minor wave 2 may not move beyond the start of minor wave 1 below 1,181.06.

Four of the five sub-waves of a triangle must be zigzags, with only one sub-wave allowed to be a multiple zigzag. Wave C is the most common sub-wave to subdivide as a multiple, and this is how primary wave C for this example fits best. Primary wave E would most likely be a single zigzag. It is also possible that it may subdivide as a triangle to create a rare nine wave triangle.

There are no problems in terms of subdivisions or rare structures for this wave count. It has an excellent fit and so far a typical look.

When primary wave E is a complete three wave structure, then this wave count would expect a cycle degree trend change. Cycle wave c would most likely make new lows below the end of cycle wave a at 1,046.27 to avoid a truncation.

DAILY CHART – TRIANGLE

Gold Elliott Wave Chart Daily 2018
Click chart to enlarge.

Primary wave E should now be underway for this wave count.

Primary wave E should subdivide as a zigzag. Intermediate waves (A) and (B) may now be complete. Intermediate wave (C) may be underway.

Minor wave 1 fits perfectly as a five wave impulse. Minor wave 2 should be complete as a deep zigzag. Minor wave 3 may now exhibit an increase in upwards momentum, and it should have support from volume. The target for minor wave 3 expects it to exhibit a common Fibonacci ratio to minor wave 1.

Minor wave 3 may only subdivide as an impulse. Within minor wave 3, minute waves i and ii may now be complete. Within minute wave iii, minuette wave (ii) may not move beyond the start of minuette wave (i) below 1,211.24.

This wave count now expects to see a third wave at three degrees to begin next week. An increase in upwards momentum is expected.

A target for primary wave E is the strong zone of resistance about 1,305 to 1,310. Primary wave E is most likely to subdivide as a zigzag (although it may also subdivide as a triangle to create a rare nine wave triangle). It may last a total Fibonacci 21 or 34 weeks. So far it has lasted 13 weeks. Primary wave E may not move beyond the end of primary wave C above 1,365.68.

WEEKLY CHART – DOUBLE ZIGZAG

Gold Elliott Wave Chart Weekly 2018
Click chart to enlarge.

It is possible that cycle wave b may be a double zigzag or a double combination.

The first zigzag in the double is labelled primary wave W. This has a good fit.

The double may be joined by a corrective structure in the opposite direction, a triangle labelled primary wave X. The triangle would be about three quarters complete.

Within the triangle of primary wave X, intermediate wave (C) should be complete. Within intermediate wave (D), minor waves A and B may be complete. Minor wave C must subdivide as a five wave structure. Within minor wave C, minute wave ii may not move beyond the start of minute wave i below 1,181.06.

Intermediate wave (D) would most likely subdivide as a single zigzag.

This wave count may now expect choppy overlapping movement in an ever decreasing range for several more months.

Primary wave Y would most likely be a zigzag because primary wave X would be shallow; double zigzags normally have relatively shallow X waves.

Primary wave Y may also be a flat correction if cycle wave b is a double combination, but combinations normally have deep X waves. This would be less likely.

This wave count has good proportions and no problems in terms of subdivisions.

WEEKLY CHART – COMBINATION

Gold Elliott Wave Chart Weekly 2018
Click chart to enlarge.

If cycle wave b is a combination, then the first structure in a double may be a complete zigzag labelled primary wave W.

The double may be joined by a three in the opposite direction, a zigzag labelled primary wave X.

The second structure in the double may be a flat correction labelled primary wave Y. My research on Gold so far has found that the most common two structures in a double combination are one zigzag and one flat correction. I have found only one instance where a triangle unfolded for wave Y. The most likely structure for wave Y would be a flat correction by a very wide margin, so that is what this wave count shall expect.

Within a flat correction for primary wave Y, the current downwards wave of intermediate wave (B) may be a double zigzag. Intermediate wave (B) must retrace a minimum 0.9 length of intermediate wave (A) at 1,147.34. Intermediate wave (B) may move beyond the start of intermediate wave (A) as in an expanded flat.

No upper invalidation point is given on this chart. Minor wave X may still continue higher. There is no Elliott wave rule stating a minimum nor maximum length for X waves within multiples.

Because the minimum requirement for intermediate wave (B) is not yet met, this wave count requires that intermediate wave (B) continues lower. This is the most immediately bearish of all four weekly wave counts.

When intermediate wave (B) is complete, then intermediate wave (C) would be expected to make at least a slight new high above the end of intermediate wave (A) at 1,365.68 to avoid a truncation. Primary wave Y would be most likely to end about the same level as primary wave W at 1,374.91, so that the whole structure takes up time and moves price sideways, as that is the purpose of double combinations.

While double combinations are very common, triples are extremely rare. I have found no examples of triple combinations for Gold at daily chart time frames or higher back to 1976. When the second structure in a double is complete, then it is extremely likely (almost certain) that the whole correction is over.

DAILY CHART – COMBINATION

Gold Elliott Wave Chart Daily 2018
Click chart to enlarge.

Minor wave X may be a complete double zigzag.

The maximum number of corrective structures within a multiple is three. This number refers to W, Y and Z. Each of W, Y and Z may only be simple corrective structures; they may not be multiples. However, the total of three does not include X waves, so X waves may be any corrective structure including multiples and the Elliott wave rule is not violated.

While X waves may be multiples, they very rarely are. The probability of this wave count is reduced.

WEEKLY CHART – FLAT

Gold Elliott Wave Chart Weekly 2018
Click chart to enlarge.

It is possible that cycle wave b may be a flat correction. Within a flat correction, primary wave B must retrace a minimum 0.9 length of primary wave A at 1,079.13 or below. Primary wave B may make a new low below the start of primary wave A at 1,046.27 as in an expanded flat correction.

Only a new low reasonably below 1,123.08 would provide reasonable confidence in this wave count.

Intermediate wave (C) must subdivide as a five wave structure; it may be unfolding as an impulse. Within intermediate wave (C), minor waves 1 through to 3 may be complete. Today minor wave 4 is relabelled as possibly incomplete as a double zigzag.

Minor wave 2 lasted 9 weeks. If minor wave 4 is now complete, then it has lasted 17 weeks. Minor wave 4 would be longer in duration than minor wave 2 by a reasonable margin. For Gold this is unusual, so the probability of this wave count is further reduced.

TECHNICAL ANALYSIS

WEEKLY CHART

Gold Weekly 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

On Balance Volume has made a lower low than its prior low at the end of November 2015. This divergence is extremely bearish but does not rule out a consolidation unfolding here; the divergence does strongly support the Triangle wave count, which expects a consolidation or bounce up to test resistance now and then a continuation of a major bear market. It could also support the flat wave count that allows for a new low below 1,046.27 in coming months.

This week completed an upwards week with a higher high and a higher low, but the candlestick is red and the balance of volume is downwards. Downwards movement within this week does not have support from volume.

DAILY CHART

Gold Daily 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

Weight is given to the bullish long lower wick on Friday’s candlestick. It looks like Monday may print a green daily candlestick.

The support line for On Balance Volume is redrawn.

Support from volume for Friday is bearish, but this can occur at the end of a movement for commodity markets.

Overall, this chart shows an upwards trend for Gold since the low on 16th of August. A series of higher highs and higher lows may be expected to continue, until a swing low is exceeded.

GDX WEEKLY CHART

GDX Weekly 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

GDX had a large consolidation that lasted from January 2017 to August 2018. A downwards breakout below support at 20.80 in early August 2018 is highly significant. The breakout had support from volume, which adds confidence.

The breakaway gap has its low at 20.51. This gap is closed, but the target for the resulting movement following the long consolidation remains. The current bounce may still find strong resistance about 20.80.

The target is at 16.02.

GDX DAILY CHART

GDX Daily 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

Strong resistance still remains above about 20.50 and 20.80. It again looks like a high may be in place for GDX.

US OIL

A correction for a second wave on the Elliott wave count was expected to have begun. So far this is starting out with some sideways movement, which still fits the overall expectation.

Summary: Intermediate wave (2) may last about 5 to 13 weeks and may be very deep indeed. The first target will be the 0.618 Fibonacci ratio at 66.40, but this may not be high enough.

It is also possible that intermediate wave (2) could be a relatively shallow sideways consolidation. The labelling within it on the daily chart may change as it unfolds. Focus will be on identifying when it could be complete. This week it is only in its early stages; a complete structure cannot yet be seen.

The larger picture still sees Oil in a new downwards trend to end reasonably below 26.06.

MAIN ELLIOTT WAVE COUNT

MONTHLY CHART

US Oil Elliott Wave Chart Monthly 2018
Click chart to enlarge.

Classic technical analysis favours a bearish wave count for Oil at this time.

The large fall in price from the high in June 2008 to February 2016 is seen as a complete three wave structure. This large zigzag may have been only the first zigzag in a deeper double zigzag.

The first zigzag down is labelled cycle wave w. The double is joined by a now complete three in the opposite direction, a zigzag labelled cycle wave x.

The purpose of a second zigzag in a double is to deepen the correction when the first zigzag does not move price deep enough. Cycle wave y would be expected to move reasonably below the end of cycle wave w to deepen the correction. Were cycle wave y to reach equality with cycle wave w that takes Oil into negative price territory, which is not possible. Cycle wave y would reach 0.618 the length of cycle wave w at $2.33.

A better target calculation would be using the Fibonacci ratios between primary waves A and C within cycle wave y. This cannot be done until both primary waves A and B are complete.

Within cycle wave y, no second wave correction nor B wave may move beyond its start above 76.90.

WEEKLY CHART

US Oil Elliott Wave Chart Weekly 2018
Click chart to enlarge.

Cycle wave x is seen as a complete zigzag. Within the zigzag, primary wave C is a five wave impulse and within it intermediate wave 4 is a triangle.

A new low below 51.67 has added confidence in this bearish wave count. At that stage, the bullish alternate was invalidated.

Cycle wave y is expected to subdivide as a zigzag. A zigzag subdivides 5-3-5. Primary wave A must subdivide as a five wave structure if this wave count is correct.

Within primary wave A, intermediate wave (1) may now be complete. Intermediate wave (2) may be very deep, or it could be a sideways consolidation.

DAILY CHART

US Oil Elliott Wave Chart Daily 2018
Click chart to enlarge.

The narrow best fit channel about intermediate wave (1) was clearly breached on the 4th of December. At that stage, this analysis expected that intermediate wave (1) should be over and intermediate wave (2) should be underway.

Intermediate wave (2) may subdivide as any corrective structure except a triangle. It would most likely be a zigzag (zigzags are the most common corrective structures). It is impossible to tell which structure it may be at the start, and as it unfolds labelling within it will change.

Intermediate wave (1) lasted 7 weeks. Intermediate wave (2) may be expected to have reasonable proportion to intermediate wave (1), so that the wave count has the right look. Intermediate wave (2) may last a Fibonacci 5, 8 or even 13 weeks if it is a more time consuming correction like a combination.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) above 76.90.

For Oil the first large second wave correction within a new trend can be extremely deep. This does not always happen, but it is a fairly common tendency; we should be aware of this possibility here.

It is also possible that intermediate wave (2) may not be deep; it could also be a shallow sideways consolidation. At this stage, it is incomplete, and it is still impossible to tell with any confidence what structure it may be.

TECHNICAL ANALYSIS

MONTHLY CHART

US Oil Chart Monthly 2018
Click chart to enlarge. Chart courtesy of StockCharts.com.

The month of November has a very small lower wick. This is still fairly bearish.

The signal from On Balance Volume is weak because the trend line breached had only two anchor points and a reasonable slope. But it is still a bearish signal.

WEEKLY CHART

US Oil Chart Weekly 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

The last three weekly candlesticks look like a consolidation within an ongoing downwards trend.

DAILY CHART

US Oil Chart Daily 2017
Click chart to enlarge. Chart courtesy of StockCharts.com.

This consolidation may have only just begun. At this stage, resistance may be about 56 and support about 50.


Always practice good risk management as the most important aspect of trading. Always trade with stops and invest only 1-5% of equity on any one trade. Failure to manage risk is the most common mistake new traders make.