Has the S&P500 Put In a Multi-Year Top?

S&P 500 Elliot Wave Analysis

Because if the S&P500 (SPX) has topped, then that is water under the bridge. Looking forward, anticipating the next few months and years matters. Or, as they say, “forewarned is forearmed.” One of the best ways and tools to do that is by assessing the past and applying the Elliott Wave Principle (EWP).

I will determine the SPX’s big-picture EWP count in this article using price data since the 1920s. Note that the S&P500’s inception occurred in 1957, and it was the S&P90 before that. I will apply the EWP’s rules, patterns, and past corrections to anticipate how this potential current Bear market may unfold logically.

Figure 1. S&P500 monthly candlestick chart with detailed EWP count

Did Super Cycle III Top, and If So, How Will Super Cycle IV Develop?

The infamous 1929 top and subsequent crash into the 1932 low are by most ellioticians regarded as Super Cycle-I and II, respectively. See figure 1 above. In more detail, SC-II was a zig-zag. The subsequent five waves rally into the 1937 high was the one degree lower Cycle-1 wave.

C2 bottomed in 1942 and was also a zig-zag. (Blue) Primary-I topped in 1946 (yes, the market rallied >100% during World War II, as it already sniffed out Germany would lose, aka the Markets are forward-looking), and P-II was another zig-zag.

We can see An impulsive advance into the 1968 high from that low. Then the index went through a six-year-long sideways consolidation. In EWP terms called an irregular, expanded flat wave (IV). Flat corrections consist of three waves: A-B-C. The internal structure of each wave is 3-3-5. In Bull markets, the B-wave of an irregular flat makes a new ATH.

From the EWP, we know that in an impulse, five comes after four, and the market embarked on P-V, which topped in 2000 to complete C3. Another almost decade-long sideways consolidation happened: Cycle 4. This wave was also an irregular expanded flat, with the 2007 ATH the B-wave top. Cycle-4 bottomed in March 2009, and since then, we have come to enjoy C5 of SC-III.

The index went through two more flat 4th waves between then and now. The smaller one (2015-2016) was a regular flat, whereas the larger one (2018-2020) was -once again- an irregular expanded flat. The “COVID crash” was the C-wave of that flat. The subsequent rally from the March 2020 low was Primary-V of Cycle-5 of Super Cycle-III. The latter may now have topped, meaning Super Cycle-IV is underway.

Given the “rule of alternation” in the EWP: “if Wave 2 unfolds as a simple ABC correction, probabilities favor Wave 4 is more likely to unfold as a complex correction. And vice-versa, if Wave 2 is complex, Wave 4 will likely unfold as a simple ABC pattern.” In this case, I established all the 2^nd waves (SC-II, C-2, P-II) were simple zig-zags and all fourth waves (P-IV, C-4, M-4, P-IV) were complex flat corrections.

Thus based on this pattern, it is logical to assume the current SC-IV wave will also be complex: a flat. At this stage, it cannot be known if SC-IV will become an irregular expanded flat, meaning wave-B of IV will make a new ATH or “only” a regular flat (A=B=C). However, based on the historical evidence, it will likely become an irregular and expanded flat.

The B-wave can reach as high as SPX5000-5500 and satisfy my long-standing call for this price level to be achieved. Or, as I always tell my premium major markets members, “if the 3^rd wave doesn’t reach the ideal upside target, the B-wave will do the trick.”

Besides, if SC-IV follows the prior 4^th waves paths, I expect SC-IV to ideally bottom between $2420-1850. Based on the timeline of these previous 4^th waves, I expect SC-IV to last potentially up to a decade. In more detail, wave-A of SC-IV has then just gotten started, and the first leg lower (wave-a of A) should wrap up soon, to be followed by a multi-month relieve rally/dead cat bounce (wave-b of A) before the next leg lower starts (wave-c of A).