Lara’s Weekly: Elliott Wave and Technical Analysis of S&P500 and Gold and US Oil | Charts – February 7, 2020

S&P 500

Downwards movement unfolded as expected for Friday. At the end of the week, all of volume, breadth and volatility are used to indicate which Elliott wave count may be most likely.

Summary: A pullback or consolidation is most likely still underway. It may end sometime next week. A downwards swing may continue that may end slightly below 3,214.68, or it may fall short of this point.

Three large pullbacks or consolidations (fourth waves) during the next 1-2 years are expected: for minor wave 4 (underway), then intermediate (4), and then primary 4.

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

Monthly charts were last published here. Video here.

ELLIOTT WAVE COUNTS

FIRST WAVE COUNT

WEEKLY CHART

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Cycle wave V may subdivide either as an impulse or an ending diagonal. Impulses are much more common, and it is clear at this stage that cycle wave V is an impulse and not a diagonal.

At this stage, cycle wave V may take another one to two or so years to complete.

A channel is drawn about the impulse of Super Cycle wave (V) using Elliott’s first technique. Draw this channel first from the high of 2,079.46 on the 5th of December 2014 to the high of 2,940.91 on the 21st of September 2018, then place a parallel copy on the low at 1,810.10 on the 11th of February 2016. Cycle wave IV found support about the lower edge.

Within Super Cycle wave (V), cycle wave III may not be the shortest actionary wave. Because cycle wave III is shorter than cycle wave I, this limits cycle wave V to no longer than equality in length with cycle wave III at 3,477.39. A new high by any amount at any time frame above this point would invalidate this main wave count in favour of one of the two alternate wave counts in the monthly chart analysis which are much more bullish.

The daily chart below will focus on movement from the end of minor wave 1 within intermediate wave (3).

Within cycle wave V, primary waves 1 and 2 may be complete. Within primary wave 3, intermediate waves (1) and (2) may be complete. Within intermediate wave (3), minor wave 4 may not move into minor wave 1 price territory below 3,021.99.

Within cycle wave V, the corrections of primary wave 2, intermediate wave (2) and minor wave 2 all show up clearly on the weekly chart. For cycle wave V to have the right look, the corresponding corrections of minor wave 4, intermediate wave (4) and primary wave 4 should also show up on the weekly chart. Three more large multi-week corrections are needed as cycle wave V continues higher, and for this wave count the whole structure must complete at or before 3,477.39.

DAILY CHART

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All of primary wave 3, intermediate wave (3) and minor wave 3 may only subdivide as impulses.

Minor wave 3 now looks complete.

Minor wave 2 was a sharp deep pullback, so minor wave 4 may be expected to be a very shallow sideways consolidation to exhibit alternation. Minor wave 2 lasted 2 weeks. Minor wave 4 may be a longer lasting consolidation. Minor wave 4 may end within the price territory of the fourth wave of one lesser degree; minute wave iv has its range from 3,154.26 to 3,070.49. However, this target zone at this stage looks to be too low.

Minor wave 4 may not move into minor wave 1 price territory below 3,021.99.

When minor wave 4 may be complete, then a target will again be calculated for intermediate wave (3).

When intermediate waves (3) and (4) may be complete, then a target will again be calculated for primary wave 3.

Draw an Elliott channel about intermediate wave (3): draw the first trend line from the end of minor wave 1 to the end of minor wave 3, then place a parallel copy on the end of minor wave 2. Minor wave 4 may find support at the lower edge of this channel if it is long lasting or deep enough. It is possible that minor wave 4 may breach the lower edge of the channel as fourth waves are not always contained within a channel drawn using this technique. If minor wave 4 breaches the channel, then it shall need to be redrawn using Elliott’s second technique.

Price has again reached the upper edge of the teal channel copied over from the weekly chart and then quickly reversed to close back within the channel on Friday. This trend line has strong technical significance and so a further reaction down from here is a reasonable expectation.

Minor wave 4 may subdivide as any corrective structure, most likely a flat, triangle or combination. Within all of a flat, triangle or combination, there should be an upwards wave which may be fairly deep. That may now be complete, but it is possible that it may continue a little higher. The common range for minute wave b within a flat is from 3,337.77 to 3,384.45.

ALTERNATE DAILY CHART

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This alternate daily chart looks at the possibility that minor wave 4 may be a complete zigzag over at the last low. This alternate chart does not have as much support from classic technical analysis as the main wave count.

Minor waves 2 and 4 for this wave count both subdivide as zigzags; there is no alternation in structure. Minor wave 2 is deep at 0.83 the length of minor wave 1, and minor wave 4 is shallow at 0.26 the length of minor wave 3; there is alternation in depth. Minor wave 2 lasted 10 sessions and minor wave 4 lasted 7 sessions; the proportion is acceptable and gives the wave count the right look.

There is no adequate Fibonacci ratio between minor waves 1 and 3. This makes it more likely that minor wave 5 may exhibit a Fibonacci ratio. The target expects minor wave 5 to exhibit the most common Fibonacci ratio within an impulse.

Within minor wave 5, no second wave correction may move beyond its start below 3,214.68.

SECOND WAVE COUNT

WEEKLY CHART

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This second wave count sees all subdivisions from the end of the March 2009 low in almost the same way, with the sole difference being the degree of labelling.

If the degree of labelling for the entirety of this bull market is all moved down one degree, then only a first wave at cycle degree may be nearing an end.

When cycle wave I is complete, then cycle wave II should meet the technical definition of a bear market as it should retrace more than 20% of cycle wave I, but it may end about either the 0.382 or 0.618 Fibonacci Ratios of cycle wave I. Cycle wave II may end close to the low of primary wave II within cycle wave I, which is at 1,810.10. It is also possible that cycle wave II could be fairly shallow and only barely meet the definition of a bear market.

The impulse is still viewed as nearing an end; a fifth wave is still seen as needing to complete higher. This wave count labels it primary wave 5. Primary wave 5 may still need another year to two or so to complete, depending upon how time consuming the corrections within it may be.

Primary wave 5 may be subdividing as an impulse, in the same way that cycle wave V is seen for the first weekly chart.

TECHNICAL ANALYSIS

WEEKLY CHART

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

It is very clear that the S&P is in an upwards trend and the bull market is continuing. Price does not move in straight lines; there will be pullbacks and consolidations along the way.

This chart is overall bullish. There are no signs of weakness in upwards movement.

A pullback or consolidation has begun. This is relieving extreme conditions. Look for strong support below about 3,020 to 3,025.

Although price has made a slight new high this week, it has not done so with conviction. Volume is weaker than the prior downwards week, and RSI and On Balance Volume exhibit short-term bearish divergence.

DAILY CHART

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The larger trend, particularly at the monthly time frame, remains up. Expect pullbacks and consolidations to be more short term in nature although they can last a few weeks.

In a bull market which may continue for months or years, pullbacks and consolidations may present opportunities for buying when price is at or near support.

Sustainable lows may be identified by a 180° reversal of sentiment in a 90% down day followed by one or more of the following things:

– Either a 90% up day or two back to back 80% up days within 3 sessions of the 90% down day.

– RSI may reach oversold and then exhibit bullish divergence.

– A strong bullish candlestick pattern with support from volume.

In the absence of bullish reversal signs, expect the pullback or consolidation to continue.

The Advance Block pattern is now followed by a small Evening Doji Star. Together these indicate weakness in upwards movement and a potential trend change. In conjunction with now strong and triple bearish divergence between price and RSI, after the prior upwards trend reached extreme and after RSI reached overbought, caution for long positions is warranted.

BREADTH – AD LINE

WEEKLY 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.

Bear markets from the Great Depression and onwards have been preceded by an average minimum of 4 months divergence between price and the AD line with only two exceptions in 1946 and 1976. With the AD line making new all time highs last week, the end of this bull market and the start of a new bear market is very likely a minimum of 4 months away, which is mid May 2020.

In all bear markets in the last 90 years there is some positive correlation (0.6022) between the length of bearish divergence and the depth of the following bear market. No to little divergence is correlated with more shallow bear markets. Longer divergence is correlated with deeper bear markets.

If a bear market does develop here, it comes after no bearish divergence. It would therefore more likely be shallow.

This week price has made a new high, but the AD line has not. There is now short-term bearish divergence that supports the main Elliott wave count.

Large caps all time high: 3,337.96 on 6th February 2020.

Mid caps all time high: 2,106.30 on 17th January 2020.

Small caps all time high: 1,100.58 on 27th August 2018.

For the short term, there is a little weakness now in only large caps making most recent new all time highs.

DAILY 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.

Breadth should be read as a leading indicator.

Bearish divergence noted in last analysis has now been followed by a downwards day. Short-term bearish divergence remains.

VOLATILITY – INVERTED VIX CHART

WEEKLY 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.

The all time high for inverted VIX was on 30th October 2017. There is now over two years of bearish divergence between price and inverted VIX.

The rise in price is not coming with a normal corresponding decline in VIX; VIX remains elevated. This long-term divergence is bearish and may yet develop further as the bull market matures.

This divergence may be an early warning, a part of the process of a top developing that may take years. It is clearly not useful in timing a trend change from bull to a fully fledged bear market.

Price has moved higher and made a new high, but inverted VIX has not. There is again short, mid and long-term bearish divergence. This supports the main Elliott wave count.

DAILY 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.

Both price and inverted VIX have moved lower on Friday. There is no new short-term divergence.

DOW THEORY

Dow Theory confirmed a bear market in December 2018. This does not necessarily mean a bear market at Grand Super Cycle degree though; Dow Theory makes no comment on Elliott wave counts. On the 25th of August 2015 Dow Theory also confirmed a bear market. The Elliott wave count sees that as part of cycle wave II. After Dow Theory confirmation of a bear market in August 2015, price went on to make new all time highs and the bull market continued.

DJIA: 23,344.52 – a close on the 19th of December at 23,284.97 confirms a bear market.

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

S&P500: 2,532.69 – a close on the 19th of December at 2,506.96 provides support to a bear market conclusion.

Nasdaq: 6,630.67 – a close on the 19th of December at 6,618.86 provides support to a bear market conclusion.

With all the indices having moved higher following a Dow Theory bear market confirmation, Dow Theory would confirm a bull market if the following highs are made:

DJIA: 26,951.81 – a close above this point has been made on the 3rd of July 2019.

DJT: 11,623.58 – to date DJT has failed to confirm an ongoing bull market.

S&P500: 2,940.91 – a close above this point was made on the 29th of April 2019.

Nasdaq: 8,133.30 – a close above this point was made on the 26th of April 2019.

GOLD

A very little more upwards movement to a short-term target about 1,574 was expected. Upwards movement has reached 1,572.29, just 1.37 short of the target.

Summary: A new low below 1,536.52 would indicate a high was in place on the 8th of January and a downwards trend has begun. This is now the main wave count as price has strongly breached a channel containing prior upwards movement.

A third wave down at two degrees may begin next week.

Grand SuperCycle analysis is here.

Monthly charts were last updated here.

BEARISH ELLIOTT WAVE COUNT

WEEKLY CHART

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Super Cycle wave (b) may a complete double zigzag. But it is possible that it may be incomplete and may require one final high; this is outlined now in an alternate wave count below.

The first zigzag in the double is labelled cycle wave w. The double is joined by a three in the opposite direction, a triangle labelled cycle wave x. The second zigzag in the double is labelled cycle wave y.

The purpose of the second zigzag in a double is to deepen the correction. Cycle wave y has achieved this purpose.

A new low below 1,374.91 would add strong confidence to this wave count. At that stage, the bullish Elliott wave count would be invalidated. At that stage, targets for Super Cycle wave (c) would be calculated.

A wide best fit channel is added in light blue. Copy this channel over to daily charts. The upper edge of this channel has again been overshot and now price has returned back to within the channel.

DAILY CHART

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It is possible that Super Cycle wave (b) may be complete and the bear market for Gold may have resumed.

A new low below 1,536.52 would invalidate the alternate bearish wave count and add some confidence in this wave count. A new low below 1,473.35 would add further confidence. Thereafter, a new low by any amount at any time frame below 1,374.91 would invalidate the bullish wave count below and add full and final confidence in this wave count. Targets for Super Cycle wave (c) would be calculated at that stage.

If Super Cycle wave (c) has begun, then it should develop a five wave structure downwards at all time frames up to and including monthly.

Minor waves 1 and 2 may be complete. Within minor wave 3, no second wave correction may move beyond the start of its first wave above 1,590.31.

ALTERNATE DAILY CHART

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The double zigzag for Super Cycle wave (b) may be still incomplete.

Within cycle wave y, primary waves A and B are complete. Primary wave C must complete as a five wave structure. It is unfolding as an impulse. Within the impulse, intermediate waves (1) to (4) may now be complete.

Intermediate wave (2) was a deep 0.79 zigzag, which lasted 8 sessions. Intermediate wave (4) may have been a shallow 0.46 double zigzag lasting 4 sessions. Fourth waves are usually more brief than second waves for Gold.

Within intermediate wave (5), minor wave 2 may not move beyond the start of minor wave 1 below 1,536.52.

Sideways and downwards movement of the last few weeks is now too large to look like a normal part of primary wave C. This wave count now does not have the right look. Its  probability is low.

BULLISH ELLIOTT WAVE COUNT

WEEKLY CHART

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This wave count sees the the bear market complete at the last major low for Gold on 3 December 2015.

If Gold is in a new bull market, then it should begin with a five wave structure upwards on the weekly chart. However, the biggest problem with this wave count is the structure labelled cycle wave I because this wave count must see it as a five wave structure, but it looks more like a three wave structure.

Commodities often exhibit swift strong fifth waves that force the fourth wave corrections coming just prior and just after to be more brief and shallow than their counterpart second waves. It is unusual for a commodity to exhibit a quick second wave and a more time consuming fourth wave, and this is how cycle wave I is labelled. This wave count still suffers from this very substantial problem, which is one reason why the bearish wave count is preferred because it has a better fit in terms of Elliott wave structure.

Cycle wave II subdivides well as a double combination: zigzag – X – expanded flat.

Cycle wave III may now be complete. Cycle wave IV may now move lower over several weeks to months.

Cycle wave II subdivides as a double combination, which lasted 110 weeks. Given the guideline of alternation, cycle wave IV may be expected to most likely subdivide as a zigzag. Cycle wave IV may be more brief than cycle wave II; Gold’s fourth waves tend to be more brief and zigzags tend to be more brief than combinations.

Cycle wave IV may not move into cycle wave I price territory below 1,374.91.

Add the wide best fit channel to weekly and daily charts.

DAILY CHART

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Cycle wave IV would most likely subdivide as a zigzag, which may last several weeks. Within a zigzag, primary wave A must subdivide as a five wave structure, most likely an impulse. Within the impulse, intermediate waves (1) and (2) may now most likely be complete. Within intermediate wave (3), minor wave 2 may not move beyond the start of minor wave 1 above 1,590.31.

TECHNICAL ANALYSIS

WEEKLY CHART

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Bullish divergence between price and On Balance Volume is contradicted by bearish divergence between price and RSI. More weight may be given to RSI as this tends to be slightly more reliable, particularly after it has reached extreme. This would support the main bearish wave count.

The upwards trend reached extreme and RSI reached overbought. After reaching overbought, RSI then exhibited bearish divergence. This set up is often (not always) seen at major trend changes.

DAILY CHART

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The last Bearish Engulfing pattern has strong support from volume, which increases the bearish implications. Expect a trend change to either down or sideways.

Now a strong downwards day after Dark Cloud Cover reinforces the view that a sustainable high may be in place.

Upwards movement is weak; volume does not support upwards movement and range is declining. The Stalled pattern suggests upwards movement may be over here. This looks like a counter trend bounce.

GDX WEEKLY CHART

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Now two bearish candlestick patterns in a row, the second with support from volume, strongly suggest a trend change here to either down or sideways. The last Bearish Engulfing candlestick pattern has support from volume.

Volume and ATR are both declining as price rises from the last swing low in November 2029. This upwards movement so far has some weakness and looks likely to be a counter trend movement.

GDX DAILY CHART

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A very strong bearish candlestick after an extreme upwards trend, along with closure of the last gap (now renamed an exhaustion gap) and now two bearish signals from On Balance Volume and volume supporting downwards movement and not upwards, strongly suggest GDX has found a high.

The last gap is now closed, so it may now be considered a pattern gap.

Price is range bound. The volume profile during this consolidation is bearish.

US OIL

The target for downwards movement to end was at 48.81. Price continued lower this week to reach 49.32, just 0.51 short of the target.

Summary: Both the bullish and bearish Elliott wave counts now expect upwards movement. The target for the main bearish count is at 65.83.

MAIN ELLIOTT WAVE COUNT – BEARISH

MONTHLY CHART

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The basic Elliott wave structure is five steps forward and three steps back. This Elliott wave count expects that US Oil is still within a three steps back pattern, which began in July 2008. The Elliott wave count expects that the bear market for US Oil continues.

This Elliott wave corrective structure is a double zigzag, which is a fairly common structure. The correction is labelled Super Cycle wave (II).

The first zigzag in the double is complete and labelled cycle wave w. The double is joined by a three in the opposite direction labelled cycle wave x, which subdivides as a zigzag. The second zigzag in the double may now have begun, labelled cycle wave y.

The purpose of a second zigzag in a double zigzag is to deepen the correction when the first zigzag does not move price deep enough. To achieve this purpose cycle wave y may be expected to move reasonably below the end of cycle wave w at 26.06. When primary wave B may be complete then the start of primary wave C may be known and a target may be calculated.

Cycle wave y is expected to subdivide as a zigzag, which subdivides 5-3-5.

Cycle wave w lasted 7.6 years and cycle wave x lasted 2.7 years. Cycle wave y may be expected to last possibly about a Fibonacci 5 or 8 years.

Primary wave B may not move beyond the start of primary wave A above 76.90.

WEEKLY CHART

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This weekly chart shows all of cycle wave y so far.

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.

Primary wave A may be a complete five wave impulse at the last low.

Primary wave B may be a double combination: zigzag – X – flat. Intermediate wave (W) fits as a zigzag. Intermediate wave (Y) may be unfolding as a flat correction.

Within intermediate wave (Y), minor wave A may be complete. Minor wave B may be a complete expanded flat. Minor wave C may now move upwards to complete the flat correction of intermediate wave (Y).

When primary wave B may be complete, then a downwards breakout would be expected for primary wave C.

Primary wave B may not move beyond the start of primary wave A above 76.90.

DAILY CHART

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This daily chart shows all of intermediate waves (X) and (Y).

Intermediate wave (Y) may be subdividing as a flat correction. Within the flat, minor waves A and B both subdivide as threes. Minor wave B at 1.13 the length of minor wave A is within the most common range of 1 to 1.38. The target calculated for minor wave C expects it to exhibit the most common Fibonacci ratio to minor wave A.

A new high above 54.38 could not be a second wave correction within minuette wave (v) within minute wave c, so at that stage minute wave c and minor wave B would most likely be complete. While price has not yet passed the confidence point, an invalidation point will not be set. Minor wave B may still continue a little lower.

ALTERNATE ELLIOTT WAVE COUNT

MONTHLY CHART

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It is possible that the bear market is over for Oil and a new bull market has begun.

For a bullish wave count for Oil, the upwards wave from the major low at 26.06 in February 2016 must be seen as a complete five wave impulse. This is labelled cycle wave I.

Cycle wave II may be a complete zigzag at 0.679 the depth of cycle wave I.

A target is calculated for cycle wave III to reach a common Fibonacci ratio to cycle wave I.

Within cycle wave III, no second wave correction may move beyond the start of its first wave below 42.37.

WEEKLY CHART

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Cycle wave II does look best as a three. This is the only part of this wave count that has a better look than the main wave count, which sees this downwards wave as a five.

The upwards wave of primary wave 1 within cycle wave III must be seen as a five wave structure for a bullish wave count to work. This movement at lower time frames does not subdivide well as a five; this reduces the probability of this wave count.

Cycle wave III may only subdivide as an impulse. Within cycle wave III, so far primary waves 1 and 2 may be complete. If it continues any lower, then primary wave 2 may not move beyond the start of primary wave 1 below 42.37.

A target calculated for primary wave 3 expects it to exhibit a common Fibonacci ratio to primary wave 1.

DAILY CHART

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Primary wave 2 may now be a complete double combination. 

The first structure in the double is a zigzag labelled intermediate wave (W). The double is joined by a three in the opposite direction labelled intermediate wave (X), which subdivides as a zigzag. The second structure in the double may now be a complete expanded flat labelled intermediate wave (Y).

The confidence point is the same for the same reason. The invalidation point must remain the same while price has not passed this point. If it continues lower, then primary wave 2 may not move beyond the start of primary wave 1 below 42.37.

TECHNICAL ANALYSIS

MONTHLY CHART

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There is now double bullish divergence between price and On Balance Volume. This supports the alternate Elliott wave count.

Overall, price has been moving sideways for a few months now. Within this sideways movement, the downwards month of May has greatest range and volume; this supports the main Elliott wave count. Upwards movement for December lacks support from volume. Now downwards movement for January exhibits increased range and support from volume. The volume profile remains bearish; this supports the main Elliott wave count.

WEEKLY CHART

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Price is consolidating, swinging from support to resistance and back again. Support is about 51 and resistance is about 66. A downwards swing may now be over; price is at support and Stochastics is entering oversold. There is little room for downwards movement to continue. Another close below support at 50 on a downwards day may indicate a downwards breakout. Support from volume would add confidence. While this has not yet happened with conviction, expect an upwards swing to begin about here.

When price consolidates, each swing is normally very choppy and overlapping. Do not expect price to move in a straight line.

DAILY CHART

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The weekly time frame is best to view the larger consolidation. This daily time frame focusses more on each swing within the larger consolidation.

At this time frame, the downwards swing is a downwards trend. The trend is now extreme. Stochastics is oversold and has been so for some time, and now there is a candlestick reversal pattern that has support from volume. The downwards swing may be over here.

On the 4th of February price closed below support, but this was quickly reversed the following session. This potential downwards breakout is unconvincing and now looks like a small overshoot of support.

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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.

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