S&P500 Update: The Correction Became Increasingly More Complex. Where Could It End?

Dr. Arnout Ter Schure
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S&P 500 Elliot Wave Analysis

Up until last week, the ongoing correction in the S&P500 (SPX) I have been tracking, using the Elliott Wave Principle (EWP), unfolded pretty well along with a standard, Fibonacci-based impulse pattern (SF-BIP). Only a few adjustments were needed for more than a month. Thus by last week, the index had done enough to the downside (see here) to consider the correction complete as it had done, technically, five waves lower since the March 29 bounce high.

However, it decided to throw us the proverbial “curveball” one more time as it dropped below last week’s low. This drop adds complexity to the ongoing price action and adds additional evidence to the current price action since the all-time high (ATH) is corrective. As I concluded last week, “I will have to revise my current POV on a drop below last week’s low,” which I will do in this update.

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

No five waves up for a more significant impulse just yet.

The rally into last week’s high was five waves up, but it came off a low made from three waves lower (see Figure 1A: “If the 3rd wave… then the b-wave will….” This pattern wrongfooted me, but I am only human and not infallible. It shows that if one misinterprets only four hours (!) of price data, the outcome can be quite different, especially in corrections.

Figure 1A shows how the index, once again, reached the ideal 5th wave target zone for grey (minute) wave-v. Namely, although the decline from last week’s high into the recent low was not ideal from a five-waves impulse perspective, it allows for setting a floor in the market. If the index can hold around today’s lows, not break below last week’s low, and rally back above yesterday’s high, then it can start trying to fill in an impulse pattern to the upside (blue arrows; grey “i?”, “ii?”, “iii?”, “iv?” and “v?”).

If last week’s low does not hold, I will adapt my EWP count to the one shown in Figure 1B and look for a low between SPX3762-3732. As you can see, the EWP count in Figure 1B has the entire decline as a (very) complex double zig-zag correction (W-X-Y). It hardly gets more complex than this and has undoubtedly caused me several headaches.

But eventually, one can elucidate the price action. It also shows that one can never know how a correction will unfold beforehand. One starts with a simple three-wave pattern (anticipate). Then, as more price data become available, one tracks it to see how these three waves unfold (monitor).

Finally, as the markets continue to morph, the EWP is adapted if necessary to accommodate these new waves (adjust). Ideally, few adjustments are needed, but expect those to occur more frequently during corrections, as that’s the inherent nature of the corrective “beast.” Remember what I always say “All we can do is anticipate, monitor, and adjust.”

Most dismiss what they do not understand, but once we wrap our heads around this concept and how the EWP tracks the probabilities of possibilities because markets are dynamic, stochastic, and probabilistic, a wonderful world of understanding awaits.

Bottom Line and S&P 500 Forecast

Last week, all ingredients were in place for the S&P500 to “either … 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 [and the] index is working on an impulse to around SPX4325+/-25. 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.” Last Friday’s drop lower thus forced me to revise my POV, and now the index is once again at a crossroads:

  1. Hold around today’s lows, a rally above yesterday’s high that targets ~SPX4160, drop to ~4050, and rally to ~4225 for a more significant impulse path. Or,

  2. Drop below last Friday’s low targeting ideally SPX3732-3762, before we can start to look for another possible impulse to move higher.

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This article was originally posted on FX Empire

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