S&P500 Update: 2018 vs 2015 and 2011. How low can it go?

Two weeks ago I mentioned “the market has spoken” and was looking for a low in the SPX2460 region. See here. Fast forward and the market has made a lower low, SPX2554, and a lower weekly close (SPX2604), whipsawed many of the past week, but not yet breached below SPX2533. Such are the machinations of a correction, especially a 4th wave at a larger degree: hard to forecast every twist and turn. But, there may be light at the end of the tunnel so let’s assess some charts.

First I would like to compare the current correction with those from 2015 and 2011, as there’s been a lot of “analogs” made, but they should be put in the right context.  All we need to do for this is to look at the long-term simple moving averages (LT-SMAs). The first chart shows the LT-SMAs for the current market and as we can see, all are bullishly stacked with the slowest (dotted) at the bottom and the fastest (purple) on top. Price is very close to the slowest. But the essence is: correction within an ongoing Bull market.

SPX LT SMAs

Now let us look at the August-October 2015 and August-October 2011 corrections. We can clearly see that in both corrections the LT-SMAs chart was much different than it is now. The fastest SMA moved quickly below the slowest SMAs and all SMAs started to point down to where the slowest SMAs was on top and the fastest at the bottom. The exact opposite as what we current have! We could define these corrections therefore as Bear markets. There are many other definitions for a Bear market, but point-in-case is that the current correction can be simple classified as a correction within an ongoing Bull (long term uptrend).

DaOvykNV4AAb83k

SPX LT SMAs 2011

With that squared away, lets look at the current correction and the 2011-correction in more detail to see if we can determine a more accurate “you are here”. In both years (2018 vs 2011) there was: an initial drop (1), then a 3-wave bounce (2), followed by another drop (3), and then another 3-wave rally to a higher high (4).  So far so good. After that lower high, the market dropped again (5), bounced (6), dropped (7), rallied (8), dropped (9) and than rallied yet again (10). After this last rally the market in 2011 dropped for five more days to put in its final correction low. On Friday the current market started this drop most likely already assuming the current detailed analog holds.

SPX DAILY

Note the 200-day SMA has held for six times during the current decline (purple arrows in chart above), and we can expect buyers exhaustion on the next attempt to break below it. Hence, if the current detailed analog with 2011 holds than we could still see SPX2450-2425 as forecasted two weeks ago and shown below again.

SPX Daily TI alt

In addition, there are three symmetry targets on the weekly chart all pointing to around SPX2460: see chart below. The purple arrow, the blue arrow and the black arrow. This level coincides nicely with a 38.2% retrace of the entire advance off the SPX1810 low made in February 2016, which is a common retrace for a 4th wave, as well as the orange uptrend line off the  June and November 2016 lows.

SPX weekly TI

If you like this type of detailed analyses, combining classic Technical Analyses with Elliot Wave (as well as market breadth and other tools, albeit not shown here), please sign up now to become a premium member and get daily market updates and weekly digests straight in your inbox. CLICK HERE.

Leave a Reply