Possible Elliott Wave Interpretation for the SP 500

Nov 16, 2008: 4:38 PM CST

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.

6 Comments

6 Responses to “Possible Elliott Wave Interpretation for the SP 500”

  1. Anonymous Says:

    Corey,
    I actually counted your (A) and (B) as the multi-decades 4 and 5 respectively. In that case, we are now at wave A. If the count is correct, we should be at the beginning of (fractal 5) of wave A.
    Probable?

  2. Corey Rosenbloom Says:

    Anon,

    Absolutely, and a colleague of mine actually has that count. If so, Wave 5 just slightly eclipsed that of Wave 4 which would be a semi-truncation.

    That’s the beauty of Elliott – we can have our own preferred and alternate counts so long as they follow the basic rules and then meet as many guidelines as possible, allowing for different interpretations. It’s when alternate and preferred counts ‘point’ in the same direction that we get better signals I suppose.

  3. david Says:

    I think this is a comples corrective 4 given to was simple.

  4. Corey Rosenbloom Says:

    David,

    We’ll need large-scale Wave (4) to pull up somewhere in the 1,200 territory or below, and it could be a complex correction because (2) was relatively simple. Let’s see how far it goes.

  5. Anonymous Says:

    Sorry I typed in a hurry and spelling was totally off.What I was trying to say is that we are still in Wave 4 and we havent felt the downside of wave five just yet. Once that plays out I think we correct to the upside. Im relatively new to EW but my dollar analysis is very similar. http://stopsarein.com/2008/11/16/euro-dollar-and-the-market/

    Here is another EW take. The problem for me as a totally new person to EW is that its coming into my vision in the (i believe 4th wave ) which is very hard to count so im constantly looking for scenarios.

  6. Anonymous Says:

    Cory, my count is the same as yours. My chart shows the current wave 5 is an expanding diagonal, which started on Nov. 4 and possibly completed intrady today. If so wave (4) started today. Do you agree with my observation?