S&P500 Update: The “final stab lower” Became Extended but Has Ended. What’s Next?

S&P 500 Elliot Wave Analysis

Using the Elliott Wave Principle (EWP), I have been tracking how the ongoing correction in the S&P500 (SPX) should unfold starting April 13. Based on the available price data back then, I found that the index would see “a final decrease to SPX4050+/-25.“ I concluded, “Now we can let the market do its thing and see how it will fill in this anticipated path and make minor changes if necessary. Or, as I always say, “All we can do is anticipate, monitor, and adjust.”

As more price data became available, that downside target was -as such- revised slightly to SPX3975-4040. Ultimately, the index bottomed last week at SPX3859 because the final (green) minor-5 wave extended. Such extensions can always happen but are impossible to know beforehand. Regardless, my bottom call on April 13 was only off by 4.1%, which is well within the margin of error my premium major market members enjoy.

Or, as I always say, “Please remember, my work is ~70% reliable and ~95% accurate. I am not a prophet. Thus, be realistic and do not expect perfection and zero bad calls in a dynamic, stochastic, probabilistic environment.”

Now that this leg of the five-waves decline has ended, it is time to assess what is most likely next.

Figure 1. SPX daily candlestick charts with detailed EWP count and several technical indicators

After five waves lower, expect at least three waves back up.

Now that the S&P500 has rallied over 5% and overlapped with the (green) minor-3 low made on May 2, the index is most likely either working on a more significant bounce (Figure 1A) or has started its final rally to SPX5500+ (Figure 1B). Allow me to explain. Once five waves have been completed, in this case to the downside, one must expect at least three waves back up. Why? Because one is never sure if the correction continues, i.e., subdivides or not.

Figure 1A shows how the market can try to morph the current correction into what is called a double zigzag in EWP terms. It would essentially mirror the leg lower from the January all-time-high (ATH) into the February 24 “Ukrainian invasion low.” Assuming symmetry, the current rally is part of a larger b-wave to ideally the (blue) 62% retrace at ~SPX4340+/-20. From that level, a final c-wave lower will then complete the correction at around SPX3750+/-25. The grey and blue arrows show the anticipated path (proportionate in price, not time).

Figure 1B shows the SPX has completed its 4^th wave correction as, so far, the entire decline from the January ATH was only made up of three larger waves, not five. Corrections are always at least three waves. Thus, the YTD price action can be considered complete. In that case, I anticipate a standard impulse pattern as shown using the green and red arrows.

With only a few days of price data available since last week’s low, it is still too early to have high confidence in the impulse path shown though the index should move forward around these lines. But, remember, what was said on April 13 applies now as well ”Now we can let the market do its thing, see how it will fill in this anticipated path, and make minor changes if necessary. Or, as I always say, “All we can do is anticipate, monitor, and adjust.”

Bottom Line and S&P 500 Price Forecast

Last week, the S&P500 bottomed 4% below my ideal target zone set forth a month prior. Well within my ~95% accuracy level my premium major market members bank on. With the recent rally off that low, it is time to look higher. Either a more significant bounce to ideally ~SPX4340+/-20 from where I expect a final c-wave lower to complete the correction at ~SPX3750+/-25.

Or the correction is over. The index is working on an impulse to around SPX4325+/-25, and I expect a wave-ii decline to around SPX4100+/-75 before the wave-iii to new ATHs kicks in. I will have to revise my current POV on a drop below last week’s low.