Not too long ago, I evaluated the S&P 500 in terms of a possible Elliott Wave Interpretation which is still playing out as anticipated according to basic Elliott Wave Principles.  Let’s update that count and see if we can glean any information from the current structure.

S&P 500 Possible Elliott Wave Count – Monthly Structure:

Let me put in the disclaimer that I am NOT an Elliott Wave expert, nor do I claim to be.  I’m attempting to apply the principles I have learned and understand from basic Elliott Wave interpretation as applied to real time charts as best I can.

That being said, the larger structure shows that we could be experiencing an “ABC” corrective wave which is either forming an “Expanded Flat” (because the “B” wave exceeded the high of the previous Wave 5 in 2000) or we are experiencing a slightly irregular Zig-Zag pattern, with the “B” wave (in both instances) being a complex corrective wave.

In either scenario if they are correct, the larger structure hints that we will – at a minimum – retest the 2002 lows and are more likely to exceed them by some measure – though both give different targets as to how much (to what magnitude) we’re likely to exceed the 815 *closing* price low (though the actual low was 775 on the S&P 500).

Remember, that if this structure is correct, Wave C is expected to unfold in a five-wave impulse down.  Let’s pull the perspective in to the recent weekly chart.

S&P 500 Possible Elliott Wave Count – Monthly Structure:

I’ve darkened the previous “Wave 5″ action so we can focus on the current possible structure unfolding.

October 2007 marked the ‘high’ and that is where I chose to begin the potential 5-wave impulse down.  Others can chart their Elliott counts differently.

Wave 1 often unfolds in a fractal 5-wave impulse itself, which is what I have shown here.  Wave 1 terminated in March 2008 before rising in an “abc” corrective pattern to complete corrective Wave 2 (which often unfolds in three waves) in May 2008.

Wave 3’s are “Elliott’s Dream Waves” and this current wave 3 – as I have chosen to label it – indeed fills that desire.  This is because third wave impulses are often violent, volatile, and contain the ‘heart’ of the entire pattern – and of course arguably offer the best trading opportunities.

I have us currently STILL in Wave 3, though it is finally coming to a welcome close.  Fractal wave 1 took us down to the July lows, corrective wave 2 took us up to the August highs… and then bloody fractal wave 3 itself subdivided into a minor Elliott 5-wave impulse that completed with the October lows.

I highlighted that development a couple of times on the blog, calling for a fractal wave 4 to occur which completed as price attempted a test of 1,000 before failing down to the current structure:  Fractal Wave 5 which is expected to be the terminus of the rather remarkable Wave 3 structure from 1,400 to 800 (or below).

Remember this is one interpretation of the current count, and I am lending my opinion on the structure. Consult your own analysis for your own conclusions and trading decisions.

IF this wave count is correct, then we could expect to see a little more downside as fractal wave 5 plays itself out and then will likely see some sort of major corrective Wave 4 that could take us all the way to S&P value 1,200 IF bulls can push us to those levels.  That would coincide with the seasonal “End of Year” tendency, better known as the “Holiday” Rally or “Santa Claus Effect” rally (tendency for equity prices to rise into year’s end).

After that, it’s “look out below” as Wave 5 might take hold into the new year and drive us back down to the 2002 lows or beyond, which would fulfill the possible Corrective ABC pattern shown above on the Monthly charts.

As with any Elliott Count, it’s best to follow it day-by-day (or week-by-week) and try not to get too rigid with the interpretation.

Guard your capital whatever your interpretation may be.