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Summary:
The S&P500 is currently in an obvious correction. Per my thesis there are two main Elliott Wave counts. One is more bullish in nature, whereas the other one signals a multi-decade correction. $5,000 is the rough target for stabilization of price. The next week or so will largely point to what count is more correct.
Disclaimer:
The opinions in this article do not represent News BTC’s official stances in any way. They are simply the Elliott Wave thoughts provided by the author.
I – Introduction
A – What is the S&P 500?
B – Why We Can Apply Elliott Wave
Elliott Wave Theory (EWT) can be applied to virtually any traded stock provided the stock exhibits sufficient trading volume and price movement to form discernible wave patterns. EWT posits that stock prices unfold in a series of impulsive and corrective waves, reflecting market sentiment, and can be analyzed across various timeframes, from intraday to long-term trends. This is crucial because EWT is based off understanding trader psychology. As well, an abundance of price history also extends its application. TradingView currently has price history going back before the 1900s, so, along with the other reasons, it can be studied all the more with EWT.
II – Analysis
A – Current Counts (Bullish & Bearish)
In keeping with classical EWT, below is my current count for the $SPX since the 2022 low.
SPX Price Data from Standard and Poor's | Source: SPX on tradingview.com.
Permalink: https://www.tradingview.com/x/dDsieayf
This count summarizes an 860d Impulse that went from $3491.58 to $6,147.43 (a 76.06% price movement). Given this Impulse is a little over two years, and with a conservative viewpoint, undergoing a typical Zig Zag, it can be classified as a complete Primary Wave. Just following from typical EWT, this appears to be a Wave 1 of Cycle Degree. If true then, after this Zig Zag, the Cycle Wave 3 will be underway for several years. Again, I want to stress that this is a conservative viewpoint. There are ways (see below) to view the ATH of $6,147.43 as the Wave 5 completion of a bull run that started in 1877 (yes you read that right).
SPX Price Data from Standard and Poor's
Source: https://x.com/tonythebullBTC/status/1908192356022563251/photo/1
B – Reasoning
One thing that EWT will stress is confluence. Elliotticians should seek general ratios or alternation when constructing any wave count, ensuring above all that it adheres to the established rules.
With my count we have Alternation in the Primary Wave 1 (Running Flat) and Wave 3 (Zig Zag). Flats being a shallow correction that take longer to finish, while the opposite is true for Zig Zags. We also have an obvious Wave 3 Extension no matter how you wish to count it. As well, most Wave 1 and 5s of various degrees follow an obvious contracting trendline. The Primary Wave 5 manifests as an Ending Contracting Diagonal, characterized by repeated Zigzags within its composition, signaling a pronounced loss of momentum and foreshadowing a sell-off.
As it currently stands the correction looks like a Zig Zag, where the Wave A stopped in the Primary Wave 4 price range (a typical reversal zone). The Wave C is currently in a steep decline in what looks to be a Sub-Wave 3. If when the market reopens on Monday we something approximating a Wave 4, then the 38.2% LFR is the likely end target for the correction. This 38.2% LFR is at roughly $5,000. The 38.2% LFR also aligns with the Intermediate Wave 4 terminus in the Primary Wave 3. Of note: Wave 4s of varying degrees are often seen as places of likely reversal.
Consequently, given the confluence with standard EWT principles, although the correction appears severe, it is likely nearing its end from my perspective. If the Wave C does worsen and reaches the 2.618 LFE (essentially the 61.8% LFR) then closer to $4,300 is warranted. My rough target is, however, $5,000 as indicated earlier. Again, though, if this conservative count is indeed wrong, then we will have to switch to the much more bearish count that I shared above (second picture). The correction targets in that scenario are significantly lower, though, for now, the current analysis adheres to the conservative interpretation.
III – Additional Material
A – Glossary
Elliott Wave Theory (EWT) – “A theory in technical analysis that attributes wave-like price patterns, identified at various scales, to trader psychology and investor sentiment.” (Chen)
Logarithmic Fibonacci Retracement (LFR) – A measured correction at certain Fibonacci ratios on a semi-log scale.
Logarithmic Fibonacci Extensions (LFE) – A measured rally at certain Fibonacci ratios on a semi-log scale.
B – References
Prechter, Robert “R.N. Elliott’s Masterworks: The Definitive Collection” (3rd Edition)
New Classics Library (2017) (https://a.co/d/0Fc8Vb5)
Prechter & Frost “Elliott Wave Principle: Key to Market Behavior” (12th Edition)
New Classics Library (2022) (https://a.co/d/agdWljd)
Gorman & Kennedy “Visual Guide to Elliott Wave Trading” (1st Edition)
Bloomberg Press (2013) (https://a.co/d/29mWuss)
Chen, James “Elliott Wave Theory: What It Is and How to Use It“ Investopedia (2023)
https://www.investopedia.com/terms/e/elliottwavetheory.asp
