Large Scale Monthly Elliott Wave Chart of SP500

Jun 19, 2009: 11:35 AM CST

Per multiple reader request, I’m providing the “bigger picture” backdrop against which to classify past and possibly future price structure in the S&P 500.  Let’s take a look at one of the most mainstream Elliott Wave counts and projections on the S&P 500 Index (monthly).


(Click for Larger Chart)

Many Elliotticians agree that we completed a large-scale Third Wave into the 2000 highs and that we are now in a 10-year Fourth Wave correction phase that began off the 2000 highs.

This Fourth Wave will (has) subdivide into a three-wave corrective phase as all fourth waves do.  Wave A was the move from 2000 – 2002; Wave B up was the bull market from 2003 – 2007.  We are now structurally in Wave C down.

To step it into more detail, Wave C subdivides into a Five-Wave sub-structure (fractal). We have already moved four waves of that expected five wave structure.

Technically, the entire move from 2000 to present has been an “Expanded Flat” where Wave B made a nominal high and Wave C is expected (has already) made a new low beneath the “A” Wave.

That is the historical count in which we trade and invest currently.  Wave C is much, much closer to its end than its beginning, but many Elliotticians agree that we have one more wave to the downside to finish-out the C wave before putting in a bottom and rallying off these levels – perhaps as low as 550 on the S&P 500 (an exact discussion on targeting is beyond the scope of this post).

With that being said, the rally from the March 2009 lows to present (if not even the November 2008 lows) has been a fractal Primary 4th Wave rally that targeted the 1,000 index level.

It now appears this rally is also coming to an end… if not has already ended already.

Whether or not we pop higher from here to challenge the 1,000 level, the future Elliott Wave pathway seems to call for one more swing down to test – at a minimum – the 666 lows from March (which would be a 5th wave truncation).  I get the sense that most seem to believe we will be breaking these lows.

Any Elliott Wave posts I do will be based on this background structure you see here.

Corey Rosenbloom, CMT
Afraid to Trade.com

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27 Comments

27 Responses to “Large Scale Monthly Elliott Wave Chart of SP500”

  1. Bhupi Says:

    can you please predict ellit wave on Nifty(Indian National Staock excahnge) as well

  2. anonymouse Says:

    Lots to study with the wave. Curious and a beginner comment. I imagine not everything goes down at once as some sectors are up or neutral at this point in time. Please enlighten as I feel fear.

  3. Corey Rosenbloom, CMT Says:

    Sure! The big recent rally distinguishes India's market from that of the US – that and India was much lower in 2000 than the US so the structure is not identical by any means.

  4. Corey Rosenbloom, CMT Says:

    Right – this is the composite market as a whole, though most sectors will have similar characteristics.

    The defensive sectors (healthcare & utilities) are showing relative strength which indicates higher odds for a broad market retracement.

  5. charles Says:

    Corey, in terms of time, wave C down looks rather short doesn't it?

    charles

  6. Corey Rosenbloom, CMT Says:

    Wave C so far has been very violent in its price destruction.
    A was roughly 3 years, B was 4 years and C is not even 2 years yet so you make a very good point.
    If we bottom at the end of 2009, it will officially be 2 years.
    Time is important to Elliott, but form/structure is of more importance (ie wave count).

    Will be interesting to see if we get a longer W5 than 2 years indeed!

  7. Catalin Hulbocianu Says:

    Hello Corey!

    Your blog is very useful. I read your comments every day!

    How would you comment the idea that wave 4th is actually a 2nd wave in the five waves sequence?

    Thanks,
    Catalin

  8. Corey Rosenbloom, CMT Says:

    Thanks Catalin,

    I make no comment as to this being the 2nd Wave up – I reject such a count as being driven by bias instead of pure wave structure.

    I am unable and unwilling to accept a count whose ultimate target is less than 100 on the S&P 500.

  9. Dyugle Says:

    It could also be a B wave of a 3 wave correction and we are just now entering the C wave down. The “elloit wave lives on blog” entertains this count. Funny thing is that a 5 wave down pattern from here could be counted as the end for both of the counts.

  10. Bob Says:

    Thanks for revisiting this… EW theory always seems so simple in concept, but it's easy to get lost in the count and not see the forest thru the trees. And, your count is now making me consider this again.

    I'd like to discuss the third wave and symetry, as I think that can help point to where price is in the grand scheme.

    The third wave is a reflection of the masses jumping on board and marks the mid-point of the the five wave move. It is considered to be the most dynamic wave; greatest price change over the shortest duration.

    Clearly, the most dynamic price movement occured during early October of 2008. Often this is marked by an expansion gap, but not in this case. So it leaves some uncertainty in targeting the mid-point. I've considered this and using differing chart features, target the mid-point at about 1,107… it's a start.

    Assuming symetry and this being the halfway point, price can be projected down, creating a target bottom at 650… This seems reasonable and would support the premise that we are in a forth wave up of a bear market corrective rally. Dow theory would also support this, as the larger downward trend has yet to be broken.

    I also spent a good deal of time looking at the count within “your” third wave down and at first reached an alternate conclusion, which presumed the march 10th low was the conclusion to the fifth wave down… And I found symetry there too. However, one thing that just didn't jive was the lack of volume associated with this sell-off being the bottom. I wanted to see capitulation and the associated panic. On march 10th, the VIX didn't surge and their wasn't the huge spike in volume I would have expected.

    So, I'm now having to reassess… Where did that forest go? 🙂

  11. Corey Rosenbloom, CMT Says:

    I guess you're implying a zig-zag off the 2007 highs perhaps. I'm not sure I understand if not – feel free to enlighten.

    The larger structure seems to be that of an ABC corrective move, so we would expect this C from 2007 – present to be a 5-wave affair – not a 3 affair (like a zig-zag would imply).

    I like it when alternate Elliott counts overlap for the 'next likely swing.' That adds confirmation – Elliott is not to be used in Isolation.

  12. Corey Rosenbloom, CMT Says:

    Haha – well it'd be too easy if it all made sense! That's why we have to work hard at this!

    Right – usually 5th waves end on massive panic volume and the March lows just didn't support that.

    Take a look at the NASDAQ – you got your unfilled expansion (continuation) gap around that time which many refer to as the “point of recognition.” The similar methods you use to come up with the 650 on SPY – I've come up with that too, but I'm seeing about 625 to 650.

    That's why I don't entertain these super-bearish counts. It blows the symmetry and structure.

    I would suspect that with many people turning bullish in the 4th wave, if we DO get a sweep-down to new lows, I guarantee you'd see panic. Mr. Cramer has all but called this the start of a new bull market which may have drawn a LOT of money into the market that will get washed out and disgusted if we do make a new low, leading to panic/capitulation – thus marking a more 'comfortable' bottom for the pros.

  13. johnnywalker Says:

    One count certainly. If they make a new high make sure you own gold har har.

  14. TickerStreet Says:

    Corey, What about the Golden crosses? COMPX, SMH, COPPER already done that before. RUT completed the Golden today. SPX is poised to do it on Monday or Tuesday. History suggests that Golden Cross has always been the start of a bull market cycle. What do you think?

  15. Mani Says:

    Corey,Best wishes this time for you and all EW followers .Whenever EW has predicted a capitulation over the past 9 months, the market goes the other way. We will wait and watch this time.

  16. Bob Says:

    Not to digress too much, but how does Gann analysis align with the EW projections targeting 650 lows?

  17. Anonymous Says:

    This is a very interesting situation. It is always hard to guage sentiment, but I don't agree with the idea put forth by some that sentiment is very bullish now. I think the majority of retail investors have been too shell-shocked to take advantage of this rally. Yes, there has been a sentiment shift in recent weeks in that talk of a new bull market has emerged and is not being dismissed as complete lunacy and the retail investors have come out from hiding under the table. But overall sentiment on stock blogs, newsletters, and the “trading community” remains bearish as far as I can tell. The doom and gloomers of the net are still out there pushing the same message as before and they still have no shortage of followers.

    This rally has been amazing. People have been trying to short it all the way up. All the fear and pessimism created the perfect “wall of worry” that bull markets love to climb. I am not making any predictions but it seems to me that this wall of worry is still in place and that there is a lot of money on the sidelines that under the right circumstances could start piling in and chasing this thing higher. Not saying that it will happen but I try to be open to all scenarios.

    Think of all the worry that preceded the recent treasury auctions… everyone is still waiting for the next disaster that will crack the market open. I'm just saying be careful playing for that 5th wave. I suspect we will get a retest of the March lows at some point. But whether it starts from 950 or 1200 remains to be seen. As of now I am not entirely convinced that we will see it as soon as most think, but that could change at any time. But yes, I agree, when we do get the retest sentiment will be crushed and everyone will want nothing to do with stocks. If you believe that the market moves in whichever way will cause the most pain to the most people then that move likely will begin from higher levels than where we are now… continuing to punish bears and suck in new bulls all the way up until everyone truly starts to believe that all is well with the market again…

    That is the advantage to day trading. You don't have to worry about any of that bull vs bear debate. 🙂

  18. Bob Says:

    True… very accurate perspective and statements I agree with.

    There are two things I really dig about this stuff, trading the market moves and understanding the psychology behind the markets. Both are fascinating pursuits. Price is a window into the soul of the consumer! It reflects consumer sentiment, optimism, pessimism, greed, etc. and people are curious about this topic. Why do the markets move the way they do? The varying schools of thought and applied mathematics try to make sense out of what appears chaotic. Gann, Pitchfork, Dow and Elliot Wave all seem to touch on things that offer order to a chaotic world.

    Cool stuff!

  19. tom Says:

    Corey, following another blog in which they say that the march lows were the completion of a 5 wave down. According to them we are now in a corrective zigzag to 1000. But your prognostication does imply much more bearish sentiment and your name to claim website.

  20. Schweizer Says:

    Wave 4 of P1 and now starting the 5th makes a lot more sense than the P2 count which requires a break of the highly respected downtrend channel, which is not likely:

    http://social.stocktock.com/photo/spx-downtrend

    See how the channel was respected in 2000-2003:
    http://social.stocktock.com/photo/channels-rule

    I show a lower basing range because the GAAP PE is 63 now and needs to be under 10 for a bear market base. That is not likely to happen at 600.

    Also, the $INDU 200-month moving average will cap any advance, making the P2 case for a push to 10000 highly doubtful:
    http://i42.tinypic.com/6fw1ea.png

    The scary part is that the SPX down channel is dropping 1pt/day, which if held will wipe out the SPX in just over 2 years. My chart shows the basing must happen in 2010 in the 300-400 range, and that this will start only once the opposite end of the channel is tested just like in 2002. That's a fast and monsterous drop, but seems to have good historical justification given the PE and the channel patterns of the past.

  21. Kai leong Says:

    Hi,

    EWI has labelled the top in 2000 as Cycle Wave V (instead of III in your diagram above) and the March 2009 lows as end of Primary Wave 1. This would also argue for the current rally as Primary Wave 2 before a large Primary Wave 3 brings the index markedly lower.

    I have their chart if anyone is interested.

  22. Schweizer Says:

    EWI has their view, but there are several other views that are just as valid. The one Cory is assuming actually makes more sense given the channels.

  23. kbmartin Says:

    I've been seriously considering Dyugle's count too. As you know, EWI thinks we're in primary 2 of cycle C. You and I agree that this seems impossibly bearish, but EWI does raise good socionomic points about the level of optimism in this recent rally — DSI reaching 86%, almost as high as 88% in 2007; intelligent investors weekly survey got high too, all the talk of green shoots. It seems like a lot of optimism for a 4 of C.

    Dyugle's count solves this — if 2007 to March '09 is primary A, and March to now Primary B, then it's almost a 38% retracement on a log scale, and a B explains the surge of optimism (and steepness) better than a 4.

    I'm not convinced that the “larger structure” (I guess you mean the 10-year) is that of an ABC correction. If you just look at those 10 years it looks good, but if you look at 100 years, the tech crash is awfully small for cycle A of a supposed supercycle correction from 1932-2000.

    In this proposed count I have the tech crash as primary 4 of cycle V, all of a broad supercycle motive wave that started at the end of 1929. (II is the 1938 crash, IV is the Vietnam era and 70s.) This supercycle wave has III and V extended.

    Of course, if this count is correct, then we're just entering (or will soon enter, if we rebound) primary C of cycle A. This would mean we have a B and a C left, but, you know, that could be a flat or whatever, so it doesn't have to be nearly as bearish as us just entering / soon entering primary 3.

    Sorry for the long and late post. Like you always say, of course, all that matters is the next swing. I'll guess we entered primary C of cycle A this month, but I would be willing to believe primary 5 of cycle A or C too. In any case we should expect an impulse down, right? Just the typical Fibonacci targets look a little different.

    Kevin

  24. Corey Rosenbloom Says:

    Hmm. I’ve never heard of that count before – I’ll have to give it a second look. Instead of the ABC of 4 I think we’re in, we could be in the three-wave “A” of the expected “ABC” of 4. Fascinating.

    Looking at a log chart, you’re right we have a stellar advance over 100 years (particularly in the last 30 years) with nary a major correction.

    I know that’s where Mr. Prechter gets his ‘ultra bearish’ count from, and I can understand his point of view, but I focus far more on the short term so I really can’t join the debate about large-scale cycle waves, other than to point out to readers that they exist and there’s a couple of viewpoints out there with differing opinions.

    If we break 550 on the S&P 500, I’ll reconsider my “optimistic” forecast/scenario but until then, I have to dig in to say that I see us currently either in the late stages of Primary 4 up or the early stages of Primary 5 down – both in the context of a Cycle C wave down.

  25. zhanhong Says:

    I totally agree with your analysis, that's exactly what I got by counting waves.
    However I think the 2000 top is the wave 5 of very grand move, that was counted by elliott himself in his essey “The future pattern of the market, oct 26, 1942” He said from 1776 to 1850 is wave 1, from 1850 to 1857 is wave 2, from 1857 to 1929 is wave 3, from 1929 to 1942 is wave 4, from 1942 is wave 5. He predict wave 5 should end around 2012 according to the length of wave 3.
    Because this downturn is the largest after 1929, I believe this should be the correction of the bullish move from 1776 to 2000.
    And I have some trouble to count ABC for the potential 4th wave from march 2009 to June 2009. That's the only thing let me doubt of it's wave 1 of a new bullish market or wave 4 of the C wave.

  26. Woody Woodworth Says:

    I think your analysis makes the most sense because it aligns with the simplest explanation of the wave count since the great depression ended. If you look at a long term Dow/S&P chart and look only at the major moves, we have a clear 'up' until 1960 (wave 1), a striking 20-year 'flat' correction until 1980 or so, and another clear 'up' (wave 3) until 2000 or so. This current correction, according to the Rule of Alternation, should be a 'sharp', and so structural rules for sharps would apply. My one wonder is: this sharp should be on the same order of magnitude as the 1960-1960 flat – so how to calculate/predict that?
    Clearly, the financial world, though licking is wounds, is unrepentant, which sets the stage for a wildly speculative 5th wave up (conforming to socioeconomic theory of market mood & behavior) that will dwarf the 'irrational exuberance' of the 90's. For the sake of my own 401k and millions of others', I certainly hope so. After that happens, then the deluge.
    Sorry, I think Prechter has miscounted himself and the deluge happens not now, but one more wild and crazy up wave later….
    see you at the top of the roller coaster… KW

  27. Woody Woodworth Says:

    I think your analysis makes the most sense because it aligns with the simplest explanation of the wave count since the great depression ended. If you look at a long term Dow/S&P chart and look only at the major moves, we have a clear 'up' until 1960 (wave 1), a striking 20-year 'flat' correction until 1980 or so, and another clear 'up' (wave 3) until 2000 or so. This current correction, according to the Rule of Alternation, should be a 'sharp', and so structural rules for sharps would apply. My one wonder is: this sharp should be on the same order of magnitude as the 1960-1960 flat – so how to calculate/predict that?
    Clearly, the financial world, though licking is wounds, is unrepentant, which sets the stage for a wildly speculative 5th wave up (conforming to socioeconomic theory of market mood & behavior) that will dwarf the 'irrational exuberance' of the 90's. For the sake of my own 401k and millions of others', I certainly hope so. After that happens, then the deluge.
    Sorry, I think Prechter has miscounted himself and the deluge happens not now, but one more wild and crazy up wave later….
    see you at the top of the roller coaster… KW