S&P 500 Update: The Correction Came as Anticipated; the Low-4000s Are Still on Tap

Two and a half weeks ago, see here, I provided my Elliott Wave Principle (EWP)-based insights on the S&P500 (SPX). Back then, I concluded, “Thus, the current down week, therefore, appears to signals a trend change. … a drop below the August low at SPX4368 (orange wave-4 at the green arrow) will confirm a (red) intermediate wave-iv to ideally SPX4030-4235 is underway. I prefer the upper end of the target zone because, in Bull markets, the downside often disappoints, and the upside surprises.” Fast forward, and the index dropped to SPX4306 on September 20^th, rallied to SPX4465 three days later, and is now once again trading at the mid-4300s. Thus, the intermediate degree wave-iv I foresaw came indeed to fruition: EWP 1 – opinion 0.

Figure 1. S&P500 daily chart with detailed EWP count and technical indicators

4^th waves are often quite tricky with lots of twists and turns

As I stated last, “The beauty of the EWP is that we know with certainty in an impulse, the 3^rd wave is followed by a 4^th wave correction and then another 5^th wave. Besides, the 3^rd wave is made up of five smaller waves. In this case (black), major-3 comprises five (red) intermediate waves: i, ii, iii, iv, and v. Most likely intermediate wave-iii of major-3 has topped. Thus wave-iv is logically most likely underway, which means wave-v of major-3 is still pending. I expect wave-v of wave-3 to complete around SPX4800-5000.“ A voila, there we have it: wave-iv is underway.

Please note 4^th waves are often quite tricky with lots of twists and turns (they can become any of 7 types of different flats or an almost endless combination of triangles). Unfortunately, corrections are thus not as straightforward as impulse waves because of the overlapping price action; every move consists essentially of three waves: e.g. (green) minor waves a and b in Figure 1 above.

Thus, my motto “anticipate, monitor and adjust if necessary” is now more than ever applicable. Based on the current price action from the All-time high (ATH) to the SPX4306 low, I prefer this correction to unfold as a more extensive flat correction. I am tracking the price action down to the 5-minute charts for my premium major markets members to ensure I get as many of each twist and turn correct. Such detail will help them short-term trading and better determine when and where this 4^th wave should bottom.

For now, the daily chart above shows the ideal path forward over the coming days and weeks: grey arrows. The up and down arrows from the September 20^th low have come to pass, with the (grey) minute b-wave of (green) minor-b now underway. Since EWP deals with the probability of possibilities, it could also be that this week’s down move is still only part of (green) minor wave-a. Regardless, I anticipated a more significant bounce back to 4500-4600 soon, unless the index decided to target SPX4230 more directly.

Bottom line: the correct perspective was the correction I anticipated only five days after the latest ATH. Since corrections are fraud with whipsaws and many twists and turns, I, therefore, view the pending correction as more of a buying opportunity than a chance to short or trade it the index. I anticipate a bottom soon around SPX4300+/-25 from where we should see a big ~200p bounce at a minimum, possibly a new rally to SPX4800-5000.

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