As the first of hopefully many articles and updates, we would like to share our insights on the S&P 500 (SPX) with you. We mainly use the Elliott Wave Principle (EWP).
As you may know, the index peaked at $5,669 on July 16, which was 28p (0.5%) below the ideal target of wave 5, the 200.00% Fibonacci extension of (red) Wi as measured by red W-ii. See Figure 1 below. That’s pretty accurate. The earlier wave, although not shown, is the rally from the March 2023 low to the July 2023 high, while the red W-ii, as shown, was the October 2023 low.
Then on Monday, it fell as low as $5,119. A drop of almost 10% in less than three weeks. So we have to ask ourselves if the index has reached a major peak. Well, it’s not all doom and gloom yet. Let us explain below.
Figure 1. Daily SPX chart with detailed EWP count and technical indicators
Assuming our big picture wave count from the October 2022 low is correct, then the index has peaked for the black W-3 and is now in the black W-4, which may have already bottomed on Monday. And thanks to the EWP, we know that after W-4 comes W-5. Indeed, the recent decline was clearly only three waves lower, with the red Wa also comprising three (green) waves. Hence corrective. Thus, the index can now work back up on five (green) waves to ideally reach $5650+/-50 for the red Wi of the black W-5.
The latter consists of five red waves (i, ii, iii, iv and v; not shown) and eventually reaches new all-time highs. However, after three downward waves, we must always expect at least three upward waves and therefore the black W-4 may not be ready yet. See Figure 2 below.
Figure 2. Daily SPX chart with detailed EWP count and technical indicators
It could be that the W-4 drags on longer and the current rally from Monday’s low is just a rebound – the red Wb – to around $5,550 +/- 50 before the red Wc resumes to ideally the 38.20% correction of the W-3 at around $4,950 +/- 25.
We must be clear that we cannot look at more than two corners at once, so we simply do not know which of the two EWP options is viable. Regardless, both options are currently pointing to the upside if the bulls can keep the index price above the colored warning levels, and a major top may not be in place yet.
