S&P500 Update: Where Next?!

Below is an excerpt of the most recent premium member major markets weekly digest, which is send out each weekend to all premium major markets members. This excerpt’s focus is on the big picture Elliott Wave count. I’ve added the pre-election year seasonal average chart to better exemplify why I prefer a certain Elliott wave option over another at this moment.

Here are my preferred two main bigger picture views of the S&P500 as it stands now based on the current price action: Either a standard wave-1 of iii of 3 of V [Figure 1] or we are in a leading diagonal (LD) [Figure 2].”

Figure 1: S&P500 daily chart with a simple, 1,2,i,ii,1,2 set up.

My gut feeling tells me the markets never make it this simple as even those with the most basic understanding of Elliott wave can figure this one out and thus position themselves correctly on the coming wave-2 pullback… That is however not how markets work as they “must” wrong foot the majority to allow for the next larger directional move. Or put differently ” Things everybody knows about rarely lead to investment success in the stock market.” Source.

So to that extend “One could argue for a large ending diagonal (ED) primary-V wave (Figure 2 black arrows and black wave-labels), but LDs are mostly of the internal 5-3-5-3-5 structure, while EDs are of the 3-3-3-3-3 pattern (see here, here and here) and the internal structure of (red) waves-i, iii and v so far count best as five waves, while wave-i is also the longest wave. Hence, when it looks like a duck and quacks like a duck it probably is a duck…

Since price often falls rapidly back to the start of the diagonal, the (red) LD would have us target SPX2750 once again (red alt: 2) before wave-3, 4 and 5 start. [This pattern would fool the most IMHO!] Since in an impulse wave-5 often targets the 200% extension of wave-1, measured from the low of wave-2, we can make a nice price target projection for Primary-V: 2750 + 2.00x (3050-2350) = SPX4150, which is perfectly within my ideal long term SPX3800-4200 target zone for Primary wave-V [to complete the Bull off the 2009 low and the Bull off the 1932 low in 2021]”

The current YTD price action is also following the pre-election year pattern rather well, suggesting it will continue to follow it. See Figure 3 below. A top last Friday or still pending (around SPX3050+/-10p) and then a decline into late-October/early-November to around or just below the June low (SPX2750+/-50) would fit this seasonal average pattern and the LD pattern incredibly well. It would also match with several larger other cycles (available to premium members only) converging around that time.

Figure 3 DJIA daily chart: 2019 YTD price action vs the average pre-election year price action

To end my update, while a little more downside, followed by some upside, and then a larger multi-week decline would be ideal, “… a break below SPX2940 from current price levels is needed to strongly suggest this whole rally was only a b-wave. Currently this is now my alternate Elliott wave count. [But even that price pattern targets the June low from which we can IMHo expect the next big rally]”.

So lets see how this plays out! We have our scripts in hand and all we now need to do is monitor the price action and adjust our POV if necessary.

Trade safe!

Arnout, Ph.D.

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