S&P 500 Update: The Fight For 4150 Or 4550

Or, the index was setting up for a rally to SPX 4550-4600 and then presented us with a ~300p drop.

It appears the latter option is happening. But before I dive into the most recent price action, please let me explain what transpired since the March low using the Elliott Wave Principle (EWP). See Figure 1 below.

Figure 1: S&P 500 hourly charts with detailed EWP counts since March 2021.

In early March, the SPX bottomed for a fourth wave and then started to rally for a fifth (within a larger third wave). Normally a fifth wave up comprises five smaller waves (green 1, 2, 3, 4, 5 in Figure 1A). Based on standard/textbook Fibonacci-based relationships for these smaller waves (see for a more detailed explanation here), the second wave retraces between 38-62% of the first wave. We got 50% (black Fib-retrace matrix in Figure 1A). Then, the index rallied right to the lower end of the ideal third wave target zone: 1.382 to 1.618x wave-1, measured from the wave-2 low. It bottomed right at the lower end of the ideal fourth wave target zone 0.764 to 1.000x wave-1, measured from the wave-2 low. Thus, so far, so good, all is going according to plan. Moreover, the green wave-5 target zone (1.764 to 2.000x 1) was hit perfectly in early July, and the index dropped strongly.

Logically, I thought the more significant third wave had topped because normally the market had done what it had to do, and one can reasonably expect a more extensive correction. In this case, black major-4.

But, when is the market “reasonable,” and when is it “normal?”

The market does not owe us anything and decided to subdivide, tagging on another wave to fulfill its destiny of SPX 4550-4600, so to say. Hence, the July 19 low rally was not expected based on the perfect Fibonacci-based impulse pattern the index had developed prior. As always, at some point, the markets will throw a curve ball. it is also why I remind people my forecasts – and that of most others – are about 70% reliable and 90% accurate.

Forecasting where the ideal third, fourth and fifth wave should top was easy. Then, unfortunately, my fourth call was wrong, as I anticipated a more significant correction, not a subdividing fifth wave. It happens, moving on.

Thus, now that the subdividing fifth wave is on our hands, I had to adjust the EWP count. See Figure 1B.

As I always say, “anticipate, monitor and adjust because we are wrong till proven right.” It now appears the last wave is completing and targeting SPX 4550-4600 ideally. Not shown here, but this area has a Fibonacci-extension confluence of four different wave degrees and, thus, is a price magnet and a place for a topping zone. From there, it is time to anticipate the subsequent 200-400p correction before the bull run to SPX 5000 resumes.

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