The S&P500 Is At a Crossroads. 3300 Is Still Possible, but the Bulls Have a Shot at 4000

Dr. Arnout Ter Schure
Published: Oct 4, 2022, 18:54 UTC

The S&P500 has now done only three waves lower from the mid-August high and can therefore try to rally back to 4300, but only if it breaks back above the mid-September high of SPX3886.

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In this article:

The 3rd Wave is Complete: Decision Time

Three weeks ago, see here, I shared using the Elliott Wave Principle (EWP)A break below the early September low of SPX3886 opens the door for [an] impulse pattern with an ideal target zone of SPX3515-3400 for (red) W-iii/c, then a potential W-iv rally back to ideally SPX3675-3785 followed by the last drop to ideally SPX3230-3330 to complete W-v of W-c of W-A.

A week later, see here, I showed “the preferred view thus remains that of an impulse lower, but the Bears do not want to see the index move back above SPX3900 as that would start to suggest only three waves lower and a more complex pattern that can still allow for [as low as] SPX3680+/-20, where W-c = W-a … before the [rally to 4375-4545] kicks in.”

Last Friday, the index bottomed at SPX3584 (Futures reached as low as 3560 on Sunday evening) and has rallied 200p since. Thus, the index came within 2.5% of the ideal target zones set forth weeks ago for this important low, showing the remarkable accuracy of the EWP. It is among the many things my premium major market members benefit from. There are now three waves down from the mid-August high (see Figure 1 below), and it is now decision time. Allow me to explain.

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

SPX3886 Remains the Key Bull/bear Line in the Sand

Figure 1 above shows the stock market has done three (red) waves lower from the mid-August high: W-i/a, ii/b, iii/c. Thus, now the index can decide if it wants to complete five (5) waves more down or only three (3) waves. The latter option was shared two weeks ago and is shown in Figure 2 below. The dividing line in the sand remains at the SPX3886 level.

Why? Because the 4th wave in an impulse cannot move into the price territory of the 1st wave. In this case, W-i is the September 6 low at SPX3886.75. Thus, if we see the index’s price move above that level at any moment as we advance without going below last Friday’s low, then the path to SPX4250-4700 opens.

Figure 2. S&P500 daily chart with detailed EWP count and several technical indicators

Please know I provide my perspective of the markets based upon the structure of the price action. Because financial markets are probabilistic, which the EWP recognizes, I must maintain a primary and alternative perspective on how the market will move. If the market breaks that primary pattern by moving above or below key price levels, in this case, SPX3886, it tells me that perspective is invalidated, and the alternative perspective will be adopted. Aka, “forewarned is forearmed.”

This saying is very appropriate. After all, this approach is no different from a general drawing up a primary battle plan and, at the same time, drawing up a contingency plan if the initial plan does not work out because battles can evolve unexpectedly. It is simply the way one must prepare for any battle as nothing is set in stone. There’s no difference in approaching the financial markets.

As such, I -and nobody for that matter- will never be able to tell you with 100% certainty how the market will move in the coming weeks, months, and years. Just like the general cannot foresee how the battle will go because there are, in both cases, almost an infinite number of variables at work. But with the EWP at hand, I can present you with enough information to know where the stock market will go under that primary perspective. And when it is invalidated, based on specific price levels, you can adjust your trading positions accordingly.

I hope you recognize the beauty of this approach, as well as the accuracy and reliability thereof. It allows me and you to view the market objectively using a mathematically based methodology. Moreover, the EWP combined with Fibonacci levels provides objective price targets and invalidation levels. Thus, when I am wrong in the minority of circumstances, one can adjust perspective and positions quickly rather than fighting the market, which is a fight you will never win.

About the Author

Dr. Ter Schure founded Intelligent Investing, LLC where he provides detailed daily updates to individuals and private funds on the US markets, Metals & Miners, USD,and Crypto Currencies

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