Downside and Upside Target Zones Reached
In our update from May 18, when the S&P500 (SPX) was trading at around $7,385, we showed using the Elliott Wave Principle that a small pullback (a 4th wave) to ideally $7,310-7,420 would precede a rally (a 5th wave) to the 376.4-400.0% Fibonacci extensions at $7,650-7,720.
Figure 1. Short-term Elliott Wave count with technical indicators for the SP500
Fast-forward to today: the index bottomed out at $7,333 on May 19 for the gray Wave-iv. It staged a rally, which peaked yesterday, June 2, at $7,620 for the gray W-v. 0.4% shy of the ideal target zone set forth two-and-a-half weeks ago. The index has most likely begun its decline today, as negative divergences (red dotted arrows on the technical indicators) continued to build.
Building Divergences Foretell a Correction
In our previous update, we shared the index’s cumulative advancing/declining line, which continued to show fewer participants even as the S&P 500 rallied. Two-and-a-half weeks later, the divergence has only worsened. See the black box in Figure 2 below.
Figure 2. Cumulative A/D line for the SP500
While prices have been moving toward new highs, the cumulative A/D has rolled over and failed to confirm — a classic warning sign of weakening market breadth. This isn’t just noise. When the broad market (advancers vs. decliners) no longer supports the index rally, it often signals a pullback or trend reversal.
Key observations from the chart:
- Multiple failed attempts by the A/D line to make new highs
- Price is making higher highs while the A/D makes lower highs
- Recent breakdown in the A/D line as price stalls
Breadth divergences don’t always trigger immediate crashes, but they’ve historically signaled many important tops. See, for example, the red box in Figure 2 above.
S&P 500 Price Forecast
Every new S&P 500 analysis as it publishes, today's technical signal and key levels, live price — on one page.
See all S&P 500 forecastsSince our last update, there has been a smaller 4th-wave pullback to $7,310-7,420 (gray W-iv at $7,333), followed by a rally to $7,650-7,720 (gray W-v to $7,620), exactly as forecast by the EWP. Though another rally to ~$7,740 after a ~5% drop can’t be ruled out just yet (not shown), the weight of the evidence points toward a large-degree decline that could last several months.