Full Scale Elliott Wave Count on the SP500

Mar 1, 2009: 1:55 PM CST

With more people focusing in on Elliott Wave as the current decline from 2007 conforms to an ideal Elliott Pattern, let’s take a look at a potential count that begins in October 2007 and is broken-down in respective subdivisions all the way to March 2009.

S&P 500 Daily Elliott Wave Structure:


(You’ll need to click to view the full picture)

I won’t go into much detail so as to let the proposed wave labeling speak for itself.

I’m relatively new to Elliott Wave and am stunned at how the Wave Structure has played out almost perfectly to the rules and guidelines developed by Ralph Elliott in the 1930s.

Impulse Waves subdivide into 5 Waves (in the larger trend) and Corrective Waves (labeled “ABC”) subdivide into 3 Waves.

The 3rd is never the shortest, but is oftentimes the longest wave (this plays out on almost all subdivisions).

What’s amazing me is that if you look closely, the October near-vertical downward plunge is located in the Wave Structure exactly where you would expect it to be, confirming the count:  Sub-Wave 3 of Fractal Wave (3) of Major Wave 3 down.  To me, that’s chilling.

It’s also known as the “Point of Recognition” where people begin to “catch on” that we’re in a bear market and they generally stop buying pullbacks.  Until then, it was feasible to some investors that things weren’t so bad… though October officially changed that all.

Now, it seems everyone’s a bear and people – even on TV – are saying we’re going to be headed down for a long time and there’s no bottom in sight…

But if you look at the Wave Structure, we need a Wave (4) up and then a Wave (5) down to finish off Circled (Major) Wave 5 before launching upwards into some sort of upwards ABC Correction.

For now, take a moment to study over the Price Wave Structure that began in October 2007 and try to internalize it – to me, it appears a textbook example in real life of the Elliott Wave Principle.

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Corey Rosenbloom
Afraid to Trade.com

27 Comments

27 Responses to “Full Scale Elliott Wave Count on the SP500”

  1. Anonymous Says:

    Another interesting factor is the retracement degree of wave 4. Depending on where you start your count , it only retraces 35 – 50% which usually means a strong, lengthy, high velocity Wave 5

  2. Anonymous Says:

    Thanks. I’m currently reading the book and learning the art. Pls. keep posting this stuff. BTW, there is an interesting video on the EWI subscriber site that shows Bob Prechter giving a talk in 1982. The chart he is using is for the Cocoa Futures contract of 1981. It looks almost identical to the SPX we have right now.

  3. Corey Rosenbloom Says:

    That’s a really good point.

    Doesn’t it just ‘feel’ like there’s more downside ahead? That it would make sense structurally if you drew more whitespace (expanded) the chart and it would ‘feel’ complete with another downside swing? Finishing on a positive momentum divergence (hopefully).

  4. Corey Rosenbloom Says:

    I’ll have to look that up. So strange to think that cocoa could be correlated in structure (in the past) to the S&P but in reality that’s exactly what the Wave principle states. Investor sentiment/mood shifts throughout stages that form price waves as investors interact and play out their biases.

    Amazing.

  5. Anonymous Says:

    My count is similar, but I am expecting an extra 4-5 pair.
    Essentially the “failed fifth” 5 (3) low you have on Oct 27 2008 I count as B of 4, and also the Nov 21 low that you have as the end of 3-circle, I have as the bottom of (3), and the Jan 6 high that you have as 4-circle, I only have as (4). So I am expecting a lot more downside, before a meaningful multi-month rally.

    Dave

  6. Anonymous Says:

    First of all great job Corey!

    So you basiclly think that we are done with this bear mkt… I wouldn’t have anything agains but it seems so impossible (so maybe that’s true:)

    Secondly, you counted that we are completing 5 of C. But it is possible also that we are about to complete only wave 1 of C (whole swing down fr. 2007 top was just first wave). Anyway, that would implicate that wave 2 of C should retrace most of wave 1 in order to create space for wave 3.

    So in each scenario we are facing huge rally from these levels.

    I have great ask for you Corey. I am from Eastern Europe (from Poland to be more specific). And there is so much talk these days about possible blow of EE. The key trigger can be the currencies. If they continue to weaken further it may cause for instance Polish and other CEE banks to collaps and probably it would spill over to the rest of Europe and US as well. So my question is, could you please conduct EW analysis of USDPLN or EURPLN (Polish Zloty exchange rate) and see where we at in the cycle.

    Many many thanks in advance! And keep up great work!

  7. tommy Says:

    First of all great job Corey!

    So you basiclly think that we are done with this bear mkt… I wouldn’t have anything agains but it seems so impossible (so maybe that’s true:)

    Secondly, you counted that we are completing 5 of C. But it is possible also that we are about to complete only wave 1 of C (whole swing down fr. 2007 top was just first wave). Anyway, that would implicate that wave 2 of C should retrace most of wave 1 in order to create space for wave 3.

    So in each scenario we are facing huge rally from these levels.

    I have great ask for you Corey. I am from Eastern Europe (from Poland to be more specific). And there is so much talk these days about possible blow of EE. The key trigger can be the currencies. If they continue to weaken further it may cause for instance Polish and other CEE banks to collaps and probably it would spill over to the rest of Europe and US as well. So my question is, could you please conduct EW analysis of USDPLN or EURPLN (Polish Zloty exchange rate) and see where we at in the cycle.

    Many many thanks in advance! And keep up great work!

  8. bond trader Says:

    Corey- thanks for all your insight.. what helped you determine that this was the right count (as opposed to the alternate count where we are currently experiencing the 5th of the 3rd)?

  9. Corey Rosenbloom Says:

    Dave,

    You could have a valid count as well, wherein we’re about to experience C of 4 up before embarking on a mean 5 down.

    This is the beauty and curse of Elliott – we each need to have our preferred counts but be aware to the possibility of alternate counts so we’re not caught flat-footed. We should also have more confidence when alternate counts line up in a given direction for a particular swing.

  10. Corey Rosenbloom Says:

    Tommy,

    I’m not declaring that the bear market is over. What I’m seeing is a potential 5-wave structure completing itself perhaps within the next two months and according to Elliott Wave, we should expect an ABC Correction back up at the end of the 5th wave.

    What happens at the end of that ABC, I don’t know. But I know with enough confidence – and I could be wrong – that I feel comfortable showing the structure and making readers aware of the possible end of the 5-wave structure.

    This could be Wave 1. Absolutely. I do not want to entertain that thought, but it’s a possibility. My argument is that we won’t know until the ABC is completed, but we’re pretty much all in agreement an ABC up is about to take place. By the time it does, we’ll have more information to make an educated guess as to the next likely swing(s).

    So glad to have you reading from Poland! I’ll try to look into the currencies. I don’t have access to the Zloty on TradeStation so I’ll have to figure out where to find the data.

  11. Corey Rosenbloom Says:

    Bond,

    Nothing is official yet in regards to the “Wave 3” or “Wave 5” Debate. We’ll know only after the upcoming ABC plays itself out but right now I don’t see any way to know for sure – we’re just going to have to make our best guess until more data comes to light and buy time until the ABC finishes.

  12. Corey Rosenbloom Says:

    Whether we’re in the 5th of 3rd (still possible) then we’ll get an ABC up in Wave 4.

    If we’re in 4th or 5th of 5th, then we’ll get a larger ABC up.

    When we finish this 5th wave down, we’ll get an A up, B down, and C up. Somewhere during that structure, the picture will become clearer.

    Right now, since they both align, odds are we’re safer playing from the long side (soon) as both counts seem to align temporarily in that direction.

  13. SSC Says:

    Nice work. The only thing I disagree with is that we’ve completed Minor 3 of Intermediate 5. To me, the tip off is that XLF has not completed minor 3 — in fact, it has a long way to go, which suggests to me that minor 3 in the indexes could extend.

  14. Corey Rosenbloom Says:

    SSC,

    Your count is absolutely valid and I teeter back and forth between the two counts. It’s just psychologically hard to accept the implications of what it would mean if we truly are in 4 of major (3). The XLF has a tremendously bearish count indeed.

  15. bond trader Says:

    SSC brings up an interesting point – within an asset class (equities here) should different vehicles (SPX, XLF, etc.) confirm counts, or have contradictions been noted before? Thanks again, BT

  16. Corey Rosenbloom Says:

    It’d certainly be nice if all sectors in the market followed the market’s count but it’s not required. In fact, some sectors will underperform (financials) while others will outperform (healthcare). Such is the nature of an index – there’s leaders and laggards. As such, we can’t expect pure Elliott counts on all segments of an index, at least not in my opinion. Or at least not as a hard and fast rule.

    We would expect related markets to confirm each other’s counts, particularly if they are inverse (dollar & oil, bonds and commodities, etc).

  17. SSC Says:

    Definitely true that each sector and each stock follows it’s own count. That’s why correlations don’t always work. Totally possible that $SPX could bounce here while XLF drops, or vice versa.

    However, XLF has been a reliable leading indicator for me thus far throughout Primary Wave 1, therefore I have to respect it. Like anything else, this strategy will work until it doesn’t, and I can’t say when that will be.

    I agree with Corey that we won’t see “pure” counts on every issue or index. However, I do expect that in most cases it will be close enough. If for example GS did not at least come within a couple of bucks of its Nov. low (termination of Intermediate 3) to complete Intermediate 5 of Primary 1, I would be surprised. Yes, this means I believe that GS will drop by nearly 50%. I cannot say when as EW doesn’t provide a strict time target.

    Which brings me back to another reason I wouldn’t be surprised to see the current wave extend — it could trigger tremendous panic, forcing “leading” stocks like GS into the abyss with everyone else and towards a more normalized wave count.

    The best part of EW is that it provides a good idea of where you are, and I should point out that the only thing I disagree with is that tiny little red 5 at the very bottom of Corey’s very excellent road map. In the grand scheme of things who cares? Maybe we go down a little, maybe we go down more than a little. In either case EW tells us what happens when Intermediate 5 completes — A-B-C to the upside.

  18. Anonymous Says:

    Waves 4 can not overlap waves 2 in true EWT count. Your overall count looks correct, however, some of the Wave 4’s look like triangles to me.

    I devoted part of my thesis in Grad school in the early 80’s on market psychology (Behavioral Economics nowadays)and used some EW counts as info. It was at Wharton and my Professor didn’t understand it. It wasn’t Jeremy Siegel but the Prof thought it was voodoo and lacked the necessary statistical analysis to support my claims. He was partly correct, yet, I guess after all of Robert Schiller’s work and the demise of the EMT, perhaps many of these Professor’s will begin to look at TA in a different light.

    To me, it is still a tool that must be used in conjunction with other variables. Some may include, fundamental analysis, quantitative analysis (valuation metrics)and credit measures. Nonetheless, it is rare when the EW count is as clear has it has been!

    Great job and keep up the good work.

  19. Samir Ghadiali India Says:

    All or some of your post I always barking like dog that as per weekly chart we are clearly in wave 3

  20. Anonymous Says:

    Gentleman this is problem of Elliot wave experts never agree with each other that in which wave finally we are……

  21. Corey Rosenbloom Says:

    Anon,

    Elliott isn’t “the answer” to me but is just an indicator that must be combined into the bigger picture much like the RSI, Stochastic, 3/10, etc. It gives structure and signals but isn’t absolute. I find it helpful to alert me to possibilities but not ever certainties. That being said, the current structure has conformed almost perfectly to the EW textbook which is amazing.

    You were an early pioneer to take up such sophisticated work before it really became mainstream. Behavioral Finance is gaining in popularly and – I believe – so is the Wave Principle. That’s so interesting – I’d love to learn some of your findings from your earlier research.

  22. Corey Rosenbloom Says:

    Samir,

    I’m still open to that possibility but don’t want to come out publicly with such a bearish final target until I am certain it is the dominant picture. It won’t be long before we know for sure which count is the preferred.

  23. Kevin Says:

    Corey, I’ve already suggested that I’m inclined to agree with Samir that this is the end of big Wave 3, although I agree with you that it’s far less than 100% clear and I haven’t bet on that yet. The riskiest thing I’ll bet on right now is that our bounce off the November lows last week was a fractal wave 1, and so we won’t cross above those again until we’ve finished this fractal wave 3 and had a 4 and 5 — maybe 3 weeks?

    That being said, I note that we’re awful close to another momentum confirmation / new low on the S&P 500 dailies. If that happens I think the 3/10 is arguing that we’re still in big Wave 3, not 5. Obviously this is alarmingly bearish and your reluctance to make that call is appropriate. On the other hand, as long as everyone wants to say the bear market is almost over, it’s not, right?

  24. Corey Rosenbloom Says:

    Anon,

    I don’t see a problem with different interpretations. Each Elliott user should have two or three counts of his own to invest/trade with the preferred count and manage risk with the alternate counts.

    After if all, if Elliott worked 100%, everyone would be doing it!

  25. Corey Rosenbloom Says:

    Kevin,

    Perhaps, but that’s a difficult thing to state with a large audience. Even Prechter – Mr. Modern-Day Elliott himself – is stating we’re about to hit a big ABC up… but what he’s NOT saying publicly is that this 5-wave structure down is not the completion of C, but only Wave 1 of C. Think about that. I would suspect the ultimate S&P target would be in the 100 level if he’s right. Is anyone saying that publicly? CAN anyone say that publicly?

    I’m leaning more towards the “We’re still in 3” camp but am just not ready to make that my official/preferred count at the moment. I’ll switch when the time comes.

    In regards to the end of the bear, it feels like people are starting to catch on that we’re in trouble. Even people/acquaintances locally who know I do “stock market stuff” are asking me questions and are scared.

    I don’t think the fear that marks bottoms has set in yet.

    No, I don’t think the bear market ends here. The best-case scenario is a long trading range to form at these levels. There’s just too much that’s gone wrong.

    That being said, the next likely play is for an ABC up.

    Is it…

    ABC up of 4 of (3) of C?
    ABC up after the (5) of C is finished?
    ABC up of 2 of (C)?

    Under all counts, we do an ABC up. My guess is we’ll know then which ABC we’re doing.

  26. SKJ Says:

    I think we have completed wave 5 of C for two reasons: we bottomed out at Primary wave 2 (in 1996) of wave 5 of the last cycle ending in 2000 (which is a tendency for C waves) and the amount of time C has taken is a clean 61.8% of wave A. Has this discussion moved elsewhere I am curious to see more postings and people’s thoughts now.

  27. Corey Rosenbloom Says:

    SKJ,

    I’ll try to do an updated post to move the discussion forward there.

    That 61.8% level (off the 1982 lows) has come into play and is a critical level to hold for sure.