Last week we showed that the A/D line was negatively diverging signalling further market weakness. As expected, the S&P500 ended the week down and lost ~50p intra-week. Nothing earth shattering, but proving our point in that keeping an eye on what the A/D line is doing is important.
Since that’s now water under the bridge, what’s up next!? Based on our Elliot Wave count and incorporating the Fibonacci-extensions of the prior larger waves up; we believe the S&P500 is most likely in the process of carving out a significant interim top.
Namely, as we showed our premium members already last week in our weekly digest, waves often extend to certain key Fibonacci-levels: 3rd of 3rd waves mostly to the 1.000x to 1.382x extension of wave 1; 3rd waves to the 1.236x to 1.618x extension, and 5th waves to the 1.764x to 2.000x extension. All measured from their respective 2nd wave lows. This of course assumes no extensions (3rd waves can travel as far as 2.618x 1 or even higher) as those cannot be anticipated beforehand. When we then look at the S&P500; we have Major-1 and 2 (black) complete as well as intermediate-i and ii (red).
Note that Major-1 could also have been the mid-April 2016 high (SPX2111); which would lower the 1.382x target from SPX2421 to SPX2407, which is even more closely in line with the 1.618x extension of intermediate-i at SPX2411. Regardless, our current count suggest that a final 5th wave for intermediate-iii is now underway. This would fit with the underlying chart setups as well as market breadth.
Lastly, and in more detail, with the low at SPX2355 last Thursday, the rally to SPX2277 on Friday and the subsequent intra-day drop to SPX2363; we may have micro 1, and 2 in place and micro-3 underway. The ideal Fib-extension for micro-5 then targets SPX2408, which fits perfectly well with the aforementioned major 1 and intermediate iii Fib-extension targets.
Where do we then expect intermediate-iv to bottom? Normally 4th waves retrace 23.6 to 38.2% of all of the prior -same degree- 3rd wave; targeting SPX2330-2280; a 80 to 130p correction. Since intermediate-ii was long drawn and shallow we expect intermediate-iv to be deeper and swifter. After, intermediate-v will follow and launch the market to new ATHs at ideally SPX2480-2490.
Forewarned is forearmed.