Did the S&P500 Take a Detour To 4300+?

The Correction Became More Complex

Over the last several weeks, see for example our previous update here, we have been tracking two Elliott Wave Principle (EWP), counts for the S&P500 (SPX) as the price action has been less-than-ideal, i.e., overlapping and stated,

“Our primary expectation is for a three-wave move to ideally $4272-4374, but we must now be cognizant that the index could stall out at around $4100+/-50 before heading down to $3700-3800.”

“The first order for the bulls is a move above the … $4028 high, followed by a break back over the February 17 high at 4081.”

The SPX rallied early last week to as high as $4078, but not above the critical $4081 level we had outlined, neither did it close on a daily basis above the critical $4070 level. Instead, the index then continued throughout the week lower. So much so, that it closed on Thursday, March 9 at $3918, which was our cue that the market chose the alternate “detour” route to $3700-3800. See Figure 1 below.

Seasonality Points to a Rally and the Decline Looks Complete

Indeed, we gave the Expanding Ending Diagional option we had been tracking plenty of room to materialize. It all looked good up to last Wednesday, but we finally got our answer the next day. Moreover, although we expected a more complex, subdividing red W-b, we only got a three-day rally.

In hindsight, this matches better with the average seasonality for the S&P500 during US Presidential Pre-election Years. See Figure 2 below. Note these pattern comparisons are not about the magnitudes but about when the lows and highs are expected, which are all +/- 2 to 3 days.

Back to the price chart in Figure 1, we find that there are enough waves in place to consider green W-3, 4, 5 complete. See the hourly resolution EWP count in grey W-iii, iv, and v here. This, in turn, tells us red W-c/y can be considered complete. Besides, the index reached the upper end of the red target zone where red W-c = W-a.

Thus, a move back above the green W-1 low at $3980 will tell us the current decline is over. The index will then have to break above the February high to confirm black W-c is underway, which could rally to as high as $4500+ for a standard c=a relationship. Sounds outlandish?

Focusing on the seasonality chart in Figure 2 suggests a rally into May, possibly even July. And although the markets do not have to follow average seasonality at all, the current decent YTD correlation suggests it will. Please note, we know from the EWP that a rally above $3980 but which stalls at ~$4075+/-25, and then the index drops below $3908 means the mid-$2000s could be on tap. Hence, place and raise your stops accordingly as having stops in place is common sense to prevent havoc to one’s portfolio.