S&P500 Update: The “final stab lower” Became Extended but Has Ended. What’s Next?

Elliot Wave Analysis of the S&P 500

I've been following how the current correction in the S&P 500 (SPX) might evolve since April 13 using the Elliott Wave Principle (EWP). I predicted that the index will "finally decline to SPX4050+/-25" based on the available pricing data at the time. "Now we can let the market do its thing and observe how it fills in this projected route, making modest tweaks as needed," I concluded. "All we can do is anticipate, monitor, and modify," as I usually say.

As further price information became available, the downside objective was marginally altered to SPX3975-4040. Because the last (green) minor-5 wave extended, the index bottomed last week at SPX3859. Such expansions are unavoidable, but hard to predict in advance. Regardless, my April 13 bottom prediction was just 4.1 percent off, which is well within the margin of error enjoyed by my premium major market subscribers.

"Please remember, my work is 70 percent trustworthy and 95 percent accurate," I usually repeat. I am not a diviner. Thus, in a dynamic, stochastic, probabilistic environment, don't anticipate perfection and zero wrong calls."

It's time to examine what's likely to happen next now that this leg of the five-wave fall has completed.

Figure 1: Daily candlestick charts of the SPX with a thorough EWP count and a number of technical indicators.

Expect at least three waves back up after five waves below.

Now that the S&P500 has risen over 5% and crossed over the (green) minor-3 low set on May 2, the index is either preparing for a bigger rebound (Figure 1A) or has begun its last surge to SPX5500+ (Figure 1B). Allow me to elaborate. After five waves have been completed, in this instance to the downward, at least three further waves must be expected. Why? Because it's impossible to know if the correction will continue to subdivide or not.

Figure 1A depicts how the market may attempt to transform the present correction into a double zigzag in EWP terms. It would largely mimic the leg down from the ATH in January to the "Ukrainian invasion low" on February 24. The present rise is part of a wider b-wave to preferably the (blue) 62 percent retrace at SPX4340+/-20, assuming symmetry. A final c-wave down from that level will conclude the correction at about SPX3750+/-25. The grey and blue arrows indicate the expected course (proportionate in price, not time).

The SPX has finished its fourth wave correction, as seen in Figure 1B, since the whole slide from the January ATH was only made up of three bigger waves, not five. Corrections are usually three waves long. As a result, the YTD price movement is complete. In that situation, I expect the green and red arrows to indicate a conventional impulse pattern.

With just a few days of price data since last week's low, it's still too early to put a lot of faith in the impulse path displayed, but the index should continue to move upward around these levels. But keep in mind that what was stated on April 13 is still valid today. "Now we can sit back and see how the market responds to this predicted course, making modest adjustments as needed." "All we can do is anticipate, monitor, and modify," as I usually say.

S&P 500 Price Forecast and Bottom Line

The S&P500 index fell 4% below my preferred goal zone established a month ago last week. My premium major market members rely on my accuracy level of 95 percent. It's time to look higher after the recent rebound from that bottom. Either a stronger rebound to preferably SPX4340+/-20, or a last c-wave down to SPX3750+/-25 to conclude the correction.

Alternatively, the adjustment is complete. The index is working on an impulse to approximately SPX4325+/-25, and before the wave-ii to new ATHs kicks in, I predict a wave-ii dip to around SPX4100+/-75. On a decline below last week's low, I'll have to rethink my present outlook.