S&P 500

Downwards movement on Friday may be a continuation of a fourth wave correction.

Summary: Both main and alternate wave counts expect the low of the 30th of October to not be breached for many months or years.

The next target for the upwards trend is at 4,608.

For the short term, if this pullback continues lower, then the next target would be at 3,687 and below that 3,600. This is still expected to be a short-term pullback within an ongoing upwards trend.

An alternate wave count at the weekly chart level has an about even probability with the main weekly chart.

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

Last monthly charts are here. Video is here.

MAIN WAVE COUNT

WEEKLY CHART

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Cycle wave V may last from one to several years. So far it is in its tenth month.

This wave count may allow time for the AD line to diverge from price as price makes final highs before the end of the bull market. The AD line most commonly diverges a minimum of 4 months prior to the end of a bull market. A longer divergence is positively correlated with a deeper bear market. A shorter divergence is positively correlated with a more shallow bear market. With zero divergence at this stage, if a surprise bear market does develop here, then it would likely be shallow.

Cycle wave V would most likely subdivide as an impulse. But if overlapping develops, then an ending diagonal should be considered. This chart considers the more common impulse.

Primary waves 1 and 2 may be complete.

Primary wave 3 may only subdivide as an impulse.

There is already a Fibonacci ratio between cycle waves I and III within Super Cycle wave (V). The S&P500 often exhibits a Fibonacci ratio between two of its actionary waves but rarely between all three; it is less likely that cycle wave V would exhibit a Fibonacci ratio. The target for Super Cycle wave (V) to end would best be calculated at primary degree, but that cannot be done until all of primary waves 1, 2, 3 and 4 are complete.

DAILY CHART

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Primary waves 1 and 2 may both be complete. Primary wave 3 may be underway.

Primary wave 3 may only subdivide as an impulse.

Intermediate wave (4) may continue lower next week. Next area of support would be the 0.236 Fibonacci ratio of intermediate wave (3) at 3,686.80, and below that the 0.382 Fibonacci ratio at 3,600.26.

Intermediate wave (4) has breached the lower edge of the weekly best fit channel. This is fairly common behaviour for the S&P500 as it does not always work well with trend channels.

An Elliott channel is added in beige about primary wave 3. If it is long lasting enough, then intermediate wave (4) may find support about the lower edge of this channel.

Intermediate wave (2) was a very deep zigzag lasting 14 sessions. Intermediate wave (4) may be an incomplete expanded flat so far lasting 14 sessions. There is alternation and good proportion between intermediate waves (4) and (2).

Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,549.85.

Primary wave 1 looks extended. The target for primary wave 3 expects it to also be extended.

ALTERNATE WAVE COUNT

WEEKLY CHART

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This wave count is the same as the first weekly chart with the exception of the degree of labelling within cycle wave V.

If the degree of labelling within cycle wave V is moved down one degree, then only primary wave 1 may be currently unfolding. When primary wave 1 may be complete, then a multi-week pullback or consolidation may begin for primary wave 2. Primary wave 2 may not move beyond the start of primary wave 1 below 2,191.86.

This wave count is more bullish than the main weekly chart. It expects that cycle wave V may be in an earlier stage and may yet last many more years than the main weekly chart expects it to. These two weekly wave counts are of an even probability. In coming months to years classic technical analysis will be used to judge the probability of these two weekly wave counts.

DAILY CHART

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This wave count is the same as the first daily chart except the degree of labelling is one degree lower within primary wave 1.

The target for a third wave up to end is the same.

TECHNICAL ANALYSIS

WEEKLY CHART

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This week completes a strong bearish candlestick reversal pattern that has support from volume. This has come when the prior upwards trend did not exhibit extreme conditions. A normal pullback within an ongoing trend looks most likely here.

On Balance Volume suggests more downwards movement here for the short term.

DAILY CHART

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For both the 27th and 28th of January up volume has dominated and volume remains relatively heavy. This is overall bullish. Now for Friday downwards volume has dominated and volume remains heavy. This is bearish for the short term.

ADX now indicates a downwards trend.

For evidence that this pullback is over one of the following will be looked for:

– a bullish candlestick reversal pattern with support from volume;

– a 90% up day or two back to back 80% up days;

– bullish signals from one or more of the AD line, VIX and On Balance Volume.

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.

Breadth should be read as a leading indicator.

Lowry’s Operating Companies Only AD line has made a new all time high on the 20th of January. This is a strong bullish signal and supports the main Elliott wave count.

Large caps all time high: 3,870.90 on January 26, 2021.

Mid caps all time high: 2,482.63 on January 25, 2021.

Small caps all time high: 1,258.83 on January 25, 2021.

This week both price and the AD line have moved lower. Downwards movement in price has support from declining market breadth, but breadth is not declining faster than price. There is no short-term divergence.

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.

Today both price and the AD line have moved lower. There is no divergence.

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.

Inverted VIX remains well below all time highs. The all time high for inverted VIX was in the week beginning October 30, 2017. There is over 3 years of bearish divergence between price and inverted VIX. There is all of long, mid and short-term bearish divergence. This bearish divergence may develop further before the bull market ends. It may be a very early indicator of an upcoming bear market, but it is not proving to be useful in timing.

This week both price and inverted VIX have moved lower. Inverted VIX has made new lows below the week beginning December 3, 2020, but price has not. This divergence is bearish for the short term.

Comparing VIX and VVIX: Both VIX and VVIX have moved higher. There is no new divergence.

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.

On Friday both price and inverted VIX have moved lower. Price has made a new low below the low two sessions prior, but inverted VIX has not. This divergence is bullish for the very short term.

Comparing VIX and VVIX at the daily chart level: VVIX has made a new high above the high of October 28, 2020, but VIX has not. This divergence is bearish for the mid term. Both VIX and VVIX have for the last session moved higher. There is no new divergence.

DOW THEORY

Dow Theory confirms a new bull market with new highs made on a closing basis:

DJIA: 29,568.57 – closed above on 16th November 2020.

DJT: 11,623.58 – closed above on 7th October 2020.

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a bull market would require new highs made on a closing basis:

S&P500: 3,393.52 – closed above on 21st August 2020.

Nasdaq: 9,838.37 – closed above on June 8, 2020.

The following major swing lows would need to be seen on a closing basis for Dow Theory to confirm a change from bull to a bear market:

DJIA: 18,213.65

DJT: 6,481.20

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a new bear market would require new lows on a closing basis:

S&P500: 2,191.86

Nasdaq: 6,631.42

GOLD

A very small range week with a little upwards movement for Gold sees both Elliott wave counts remain the same.

Summary: The first wave count is bearish for the bigger picture and has only one daily chart. This wave count expects a multi-year bear market may be in its early stages to end below 1,046.

Downwards movement may increase in momentum. A short-term target is at 1,645. A long-term target is at 657. Some confidence may be had in this bearish wave count if price makes a new low below 1,766.53. This wave count may be discarded if price makes a new high above 1,957.87.

The second wave count is bullish for the bigger picture. It now expects that the pullback was over at the last low and the bull market for Gold has resumed to a new short-term target at 2,086, and with a mid-term target at 2,182. Confidence may be had in this second wave count if price makes a new high above 1,957.87.

For GDX, a target for downwards movement is calculated at 29.95.

Grand SuperCycle analysis is here.

Last analysis of monthly charts is here.

FIRST ELLIOTT WAVE COUNT

WEEKLY CHART

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The bigger picture for this first Elliott wave count sees Gold as still within a bear market, in a three steps back pattern that is labelled Grand Super Cycle wave IV on monthly charts. Grand Super Cycle wave IV may be subdividing as an expanded flat pattern.

Super Cycle wave (b) within Grand Super Cycle wave IV may be a complete double zigzag. This wave count expects Super Cycle wave (c) to move price below the end of Super Cycle wave (a) at 1,046.27 to avoid a truncation and a very rare running flat. The target calculated expects a common Fibonacci ratio for Super Cycle wave (c).

The first zigzag in the double is labelled cycle wave w. The double is joined by a three in the opposite direction, a combination 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 best fit channel is drawn about primary wave C to contain as much of this movement as possible. This channel is now clearly breached, which suggests the upwards wave labelled cycle wave y may be over. The lower edge of the channel may provide resistance for any deeper bounces.

DAILY CHART

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Within a new bear market, primary wave 1 may be an incomplete five wave impulse.

Primary wave 2 within the new downwards trend may not move beyond the start of primary wave 1 above 2,070.48.

Gold typically exhibits extended and strong fifth waves; this tendency is especially prevalent for fifth waves to end third wave impulses one degree higher. One or more of minuette wave (v), minute wave v and minor wave 5 may exhibit this tendency; there may be one or more selling climaxes along the way down. Minute wave iv and minor wave 4 may be relatively brief and shallow.

A best fit channel is drawn as shown. The upper edge may be used as a guide for resistance of any deeper bounces.

Minuette wave (ii) may be complete as a double zigzag. No second wave correction within minuette wave (iii) may move beyond its start above 1,957.87.

A new swing low below 1,766.53 would add reasonable confidence to this wave count.

SECOND 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.

Cycle wave I fits as a five wave impulse with reasonably proportionate corrections for primary waves 2 and 4.

Cycle wave II fits as a double flat. However, within the first flat correction labelled primary wave W, this wave count needs to ignore what looks like an obvious triangle from July to September 2016 (this can be seen labelled as a triangle on the first wave count above). This movement must be labelled as a series of overlapping first and second waves. Ignoring this triangle reduces the probability of this wave count in Elliott wave terms.

Cycle waves III and IV may be complete.

Cycle wave IV may be a complete double zigzag. It is also possible that cycle wave IV may continue sideways as a flat or lower as a triple zigzag. For this reason the invalidation point is at the end of cycle wave I. Cycle wave IV may not move into cycle wave I price territory below 1,303.51.

Draw an Elliott channel about this impulse as shown. Cycle wave V may find resistance about the upper edge.

DAILY CHART

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Cycle wave IV may be over as a double zigzag.

A new swing high above 1,957.87 would add reasonable confidence to this wave count. Finally, a new all time high would add strong confidence to this wave count.

If cycle wave IV is complete, then it would have lasted only 17 weeks compared to 119 weeks for cycle wave II. While it is normal for Gold to exhibit fourth waves that are more brief than their counterpart second waves, a difference this great is unusual. This reduces the probability of this wave count.

When primary wave 1 within cycle wave V is complete, then primary wave 2 may not move beyond the start of primary wave 1 below 1,766.53.

Intermediate wave (1) may have ended at the last swing high. Intermediate wave (1) will subdivide on lower time frames as a five wave structure, but at the daily chart level it does not look like a normal five wave impulse, which reduces the probability of this wave count.

Intermediate wave (2) may have completed as a zigzag. If it continues lower, then intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,766.53.

SECOND ELLIOTT WAVE COUNT

ALTERNATE WEEKLY CHART

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It is possible for the second wave count that cycle wave III may be an incomplete impulse. Primary wave 5 within the impulse may be underway.

If primary wave 4 continues lower, then it may not move into primary wave 1 price territory below 1,687.92.

Primary wave 3 is longer than primary wave 1 (the chart is on a semi-log scale, which gives the illusion that primary wave 3 is shorter). There is no Fibonacci ratio between primary waves 3 and 1.

There is alternation between an expanded flat of primary wave 2 and a double zigzag of primary wave 4. Both are of a similar depth. Primary wave 2 lasted 3 weeks while primary wave 4 lasted 17 weeks. It is unusual for Gold to exhibit fourth waves that are much longer lasting than counterpart second waves. The probability of this wave count is reduced.

TECHNICAL ANALYSIS

WEEKLY CHART

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

At the last high were two bearish candlestick patterns with overbought RSI exhibiting double bearish divergence. It is possible there may have been a 180° trend change at the high. A new swing low below 1,671.70 would add confidence in that view.

From the all time high is now a series of two lower swing highs and three lower swing lows, which may be a new downwards trend. However, downwards movement from the all time high has now lasted long enough to bring ADX and RSI down from extreme, so there is again room for an upwards trend to continue.

DAILY CHART

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From the high on August 7, 2020, there has been a series of lower lows and lower highs. While the last swing high now on the 6th of January at 1,962.50 remains intact, then this view of a possible downwards trend should remain dominant.

Downwards movement has strong push from volume and increasing ATR.

Overall, this chart remains bearish. There is a downwards trend. RSI is not oversold, and the trend is not extreme. The bearish signal from On Balance Volume should be given weight.

For the short term, now two bearish long upper wicks suggest downwards movement next week.

GDX WEEKLY CHART

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If GDX makes a new swing high above 41.59 and On Balance Volume breaks above resistance, then the pullback of the last several weeks since the high in August 2020 may be considered over.

For the short term, some push this week from volume suggests a downwards week next week.

GDX DAILY CHART

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Overall, from the high on August 5th, there is still a series of lower lows and lower highs, the basic definition of a downwards trend. For this view to change a new high above 39.01 would have to be seen.

The mid-term 55 day average has crossed below the long-term 200 day average. This crossover is bearish.

A potential Head and Shoulders pattern is noted, but it is not perfect. Between the left hand shoulder and the head is another peak, so it is possible it may be continuing to form another right hand shoulder for a more complex head and shoulders pattern. A possible target after a downwards breakout is calculated at 29.95.

US OIL

An inside week this week leaves the main and alternate Elliott wave counts the same.

Summary: Classic analysis suggests a high may be in place for the short to mid term, but the Elliott wave count allows for one final small wave up to a target at 55.40.

A new low below 48.96 and a breach of the channel on the daily chart would indicate a trend change. At that stage, a multi-week pullback or consolidation may be expected.

A longer-term target for a third wave is at 87.90 or 121.43.

Oil may have found a major sustainable low in April 2020.

ELLIOTT WAVE COUNT

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 has completed a three steps back pattern, which began in July 2008. The Elliott wave count expects that the bear market for US Oil may now be over.

Following Super Cycle wave (III), which was a correction (three steps back), Super Cycle wave (III), which may have begun, should be five steps up when complete. Super Cycle wave (III) may last a generation and must make a new high above the end of Super Cycle wave (I) at 146.73.

A channel is drawn about Super Cycle wave (II): draw the first trend line from the start of cycle wave w to the end of cycle wave x, then place a parallel copy on the end of cycle wave w. This trend line is breached, which is a typical look for the end of a movement for a commodity.

The upper edge of the channel may provide resistance. If resistance is breached, then the upper edge may provide support for a back test.

Super Cycle wave (III) may only subdivide as a five wave impulse. New trends for Oil usually start out very slowly with short first waves and deep time consuming second wave corrections. However, while this is a common tendency, it is not always seen and may not have been seen in this instance. The first reasonably sized pullback may be over already.

WEEKLY CHART

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Super Cycle wave (III) must subdivide as an impulse. Cycle wave I within the impulse may be complete. Cycle wave II may also now be complete, and cycle wave III upwards may now have begun. If cycle wave II continues lower, then it may not move beyond the start of cycle wave I below 10.24.

There is only one daily chart following this main weekly chart. An alternate is presented below on a weekly chart.

DAILY CHART

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Cycle wave III may only subdivide as an impulse. Within the impulse: Primary wave 1 may be incomplete, and primary wave 2 may not move beyond the start of primary wave 1 below 33.65.

Intermediate wave (5) within primary wave 1 may be nearing an end.

If minor wave 4 moves lower, then it may not move into minor wave 1 price territory below 48.96.

Intermediate wave (5) has passed equality in length with intermediate wave (1), and the structure is incomplete. The next Fibonacci ratio in the sequence is used to calculate a new target for intermediate wave (5).

In the short term, a new low below 48.96 prior to new highs would be a strong indication that primary wave 1 should be over and primary wave 2 should be underway. A new low below 48.96 prior to new highs could not be minor wave 4, so minor waves 4 and 5 would have to be over at that stage. This would also come with a breach of the best fit channel.

At this stage, the best fit channel is not properly breached. A breach would be a full daily candlestick below and not touching the lower edge; for confidence, a breach  should be by clearly downwards movement and not sideways.

US Oil seems to form rounded tops. This process may involve channel breaches by sideways movement before price slowly continues higher.

When primary wave 1 is complete, then a multi-week pullback or consolidation for primary wave 2 should begin. The best fit channel may help as a guide to when primary wave 1 may be over. When this channel is breached by at least one full daily candlestick of downwards movement below and not touching the lower edge, then it may indicate a trend change.

ALTERNATE WEEKLY CHART

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This alternate wave count moves the degree of labelling within the start of the bull market down one degree. It is possible that cycle wave I is incomplete.

The target for primary wave 3 is lower than the target on the first wave count.

A daily chart for this alternate would be the same as the daily chart for the main wave count, except the degree of labelling would be one degree lower. The channel would be the same.

TECHNICAL ANALYSIS

WEEKLY CHART

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Price is within a cluster of resistance and support; this may slow it down.

ADX gives a strong bullish signal. There is a lot of room for an upwards trend to continue as RSI and ADX are not extreme.

DAILY CHART

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The Bearish Engulfing pattern has a little support from volume. A little confidence that a high may be in place may now be had. This week a bearish signal from On Balance Volume adds support to this view.

At the daily chart level, this upwards trend is now extreme and RSI is overbought. However, this market can sustain extreme conditions for some time while price travels a reasonable distance.

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