Final hours! Save up to 55% OFF InvestingProCLAIM SALE

S&P 500 Stuck Between a Rock and a Hard Place

Published 2023-08-28, 03:12 p/m
US500
-

Almost a month ago, see here, we asked the question if a major top was forming for the S&P500. Using the Elliott Wave Principle (EWP) we found:

"Although the index has not dropped below the critical $4458 level, we must now be mindful that either the red W-iv to ideally $4300+/-25 is underway, or the blue W-B counter-trend rally has ended, and the index is working lower to $2700-2900. Please note the upside levels have been on our radar since October last year. See here when we were looking for the index to reach SPX4350-4650."

On August 18, the index bottomed out at $4335, very close to the red W-iv target zone, shown in Figure 1 below. On the daily chart, the decline since the July $4707 high counts best as "three waves down," which means that the most bullish possibility cannot yet be eliminated: the decline was a correction, red W-iv? and that correction is over. Thus, from this perspective, the Bears still need at least one more low to turn the decline into a more significant impulse down.

Figure 1. Daily SPX chart with detailed EWP count and technical indicators

S&P 500 Daily Chart

However, there's another possibility. Namely, the price action encompassed by the orange box in Figure 1 is highlighted in Figure 2 below. Using this chart, we found in our last update the SPX had to:

"rally above $4443, without dropping below today's low again, to indicate early the red W-ii/b is underway, with confirmation above $4490. If it stalls around $4425+/5 and then drops below today's low, we should expect $4370-80 before the index can retry its multi-day "dead cat bounce.

Figure 2. Hourly SPX chart with detailed EWP count and technical indicators

S&P 500 Hourly Chart

Fast forward, and the index stalled at $4421 that day, bottomed out at $4335 the next, and rallied by last Thursday above $4443, confirming the anticipated EWP pattern. Given that the decline lasted three weeks, a three-day bounce appears too short to allow for a more proportionate counter-trend rally. See the blue and red time cycles in Figure 2.

Thus, Thursday's $4458 high can be counted as green W-a, Friday's $4356 low as green W-b, and now the index is working on green W-c of red W-ii/b to ideally $4500+/-25. From there, the index must break first below the $4458 high, followed by the August 18 low to usher in red W-iii/c to ~$4075. If, however, the index rallies through $4525, towards the $4550-4600 region, and holds above $4458 on any pullback, then chances increase the recent month-long decline was indeed only a correction, and we should look for $4790+/-10 to be reached before the Bears have another chance.

Regardless, we can conclude, as long as Friday's $4356 low holds, we should look higher for at least $4500+/-25. Above the $4550-4600 region, and $4790+/-10 is likely next.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.