SP 500 Hourly Structure Year to Date

Mar 27, 2009: 10:39 AM CST

As a slight continuation of last night’s “Elliott Wave” update post, let’s look at the hourly (60m) chart of the S&P 500 from the beginning of 2009 until present (mid-day Friday, March 27) with a special look at divergences, moving average structure, and fractal Elliott Waves.

(Click for larger image)

The year began with a few days of higher prices… then the downward pulse began.

A Cradle Trade (confluence EMA crossover) formed where I’ve labeled fractal Wave 2 and then a deviant Wave 3 took us down to lower prices for the year.  The 5-wave structure that began the year ended at the lows of Fractal 5, and then a month-long ABC Flat Correction consolidated those prices from the earlier decline, and then an even more insidious 5-wave Structure took us down to the March 9th lows of 666 on the S&P 500.

Notice how that structure sub-divided with a lengthy fractal 5th wave.

We now appear to be coming to the end of an upward 5-wave impulse that many of us believe ‘should’ have stopped at the 805 level (where there were multiple confluence resistance points there… all of which failed to hold as buyers were aggressive in their campaign – and short-seller stop-losses were triggered once 805 broke).

The final 5th wave appears to be forming a fractal ending diagonal, but it’s so difficult psychologically to bet against the bulls since they took over the battle (of supply and demand) earlier this month.

Beyond fractal Elliott structure, pay close attention to the 3/10 Oscillator as I’ve highlighted the year’s positive and negative momentum divergences.  Use this as an opportunity to see various divergences for yourself.  Sometimes Divergences precede a trend reversal but most of the time, they allow you to play for small scalps (pieces) only and hint that the next retracement might be stronger than otherwise expected.  Other times, divergent signals (like those around March 16th) fail entirely.

Do not build a trading strategy based on divergences.  Use them as a tool in your arsenal.

Also, look closely at the 20 and 50 period EMAs and how they managed to contain price (as support and resistance) many times, and how their crossovers helped you assess the trend structure as it was developing.

My favorite “Cradle Trade” set-up occurred as the 20 crossed the 50 EMA and then price rallied back to test that exact cross-over point.  The most recent “Cradle” formed again on a fractal Wave 2 that preceded the recent rally.

As a rule, moving averages (and trades setting up based upon them) have their greatest significance during a trending move and least significance during a trading range (like that from January 20 until February 17).

There are many lessons to be learned from this chart.  Continue studying it and feel free to share your insights in the comments below.

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25 Comments

25 Responses to “SP 500 Hourly Structure Year to Date”

  1. shodson Says:

    Which EMAs are you using? And which studies you have at the bottom?

  2. Corey Rosenbloom Says:

    I’m using the following:

    20 EMA
    50 EMA
    200 SMA

    Customized MACD with settings 3, 10, 16

    (Bollinger bands – standard)

  3. Neil Says:

    Hi Corey,
    Very good post, and very well said, to not build a trading strategy based just on divergences, infact the whole point is to not to build a strategy on just one tool, indicator, or oscillator …. instead they should be used in conjuction with each other. But having said that, one should’nt also use too many tools and indicators, as too many of those things might make everything too complex and confusing. Frankly, what I believe is, builiding a good strategy takes a lot of time and experience whith analysis. So anyone new in tech analysis, should just paper trade for a few months …. and last but not least, the truth is that, there is no holy grail that people search for.

  4. Neil Says:

    and one more thing …. along with the “cradle” setup which is infact avery good setup for a trade, you can also see inverted H&S pattern in the 60 mins chart of S&P a couple of times. So that gives a double confirmation for a bullish setup.

    Cheers

  5. Don-Da-Mon Says:

    Did you mention are the MAs are in the most bullish orientation? I’ve seen many posts in the past that pointed out when it was the most bearish. Or do you reserve that for daily or weekly charts? Perhaps I missed it in prev blobs. .. For me it is psychologically too difficult to type. 😉

  6. Scott Says:

    Your chart illustrates something I’ve been noticing the last few months … that one needs to wait for triple divergences. Double divergences haven’t been enough it seems.

  7. yogi Says:

    Excellent analysis Cory…thanks a lot for a wonderful edu blog.

    Could you please look at financials especially GS and pour your insights as to EW structure when you get a chance.

    Thanks

  8. David Forster Says:

    Corey,

    Your post on ’37-38 from a while back is one I have bookmarked, as we are following it almost exactly. The above chart does look remarkably similar to the one you posted in that analysis. It would be interesting to have you re-visit it. It is certainly the analog that I am following. THANKS!

  9. Corey Rosenbloom Says:

    Neil,

    My sentiments exactly! Very well said! Trading is a balance across so many issues.

    Too much this or too little that. While some people are talented enough to look at price alone and make wonderful trading decisions, most of us need at least one or two indicators to help us. But if we try to put 30 indicators on a chart, then we get paralyzed.

    Very good points!

  10. Corey Rosenbloom Says:

    Neil,

    The more I study the cradle, the more I’m finding it correlates with other important chart points and patterns. Such a great pattern.

  11. Corey Rosenbloom Says:

    Don,

    Precisely! I tried to compress the analysis in the chart – that’s why I’m happy to open the comment section up to readers!

    This chart is an example of so many things – one of which is how price relates to moving averages, and what happens when these averages are in the most bullish or bearish orientation possible.

  12. Corey Rosenbloom Says:

    Scott,

    Even triple divergences – or what I call the “Three Push Pattern” sometimes fails. There’s no absolute 100% method to anything. But divergences tend to ‘work’ more times than they don’t, in terms of getting a larger than expected retracement swing (and sometimes granting a full trend reversal).

  13. Corey Rosenbloom Says:

    Yogi,

    I’ve been meaning to post something on GS for a while. I’ll try to do so this weekend. Thank you for the request!

  14. Corey Rosenbloom Says:

    David,

    It sure is scary, isn’t it? How price is acting very similar to the late ’30s. I’ll have to go back and zoom in on the particular period now for a more detailed comparison. It’s so interesting!

  15. Dominick Says:

    Hello Corey, great post as always. My question is which time frame rules? The 5 min., one week 15 min., two week 30 min.,3 month 60 min., or larger daily timeframes? They say the trend is your friend but on which scale? Does it depend on your trading style? Intra day, swing, etc?

  16. Anonymous Says:

    Ema fun : http://stockcharts.com/h-sc/ui?s=$SPX&p=60&yr=0&mn=3&dy=0&id=p07117519197

  17. Corey Rosenbloom Says:

    Dominick,

    Excellent question.

    There’s a hierarchy of timeframes, in that higher timeframe signals/structure hold more weight than lower.

    But each timeframe offers its own nuances and opportunities.

    It really depends on the trader and what’s appropriate. A person with a full time job probably can not trade looking at low timeframe charts – he/she will have to stick to daily and weekly.

    However an intraday, 1-min or 5-min chart trader probably won’t get much relavence from a weekly or monthly chart.

    All concepts in technical analysis are fractal.

  18. Corey Rosenbloom Says:

    Anon,

    I love it!

    I used to have a study in TradeStation called the MA Ribbon, that had probably 20 or 30 moving averages of different colors. Was beautiful like that.

  19. Kevin Says:

    Corey,

    I’m having a lot of trouble labeling this impulse up since Mar 9. I ended up with a different labeling than you — doesn’t your labeling have iii of 3 up as the shortest wave, a rule violation?

    Anyway, I have a tiny 1 and 2 at the beginning, then a third wave extension, then my 3 and 4 match yours. But my channel has wave 5 finishing on Mar 23 or so, and what comes since is labeled as an A-B irregular flat. In that case we’re just starting an impulse wave C down. Well, I guess it’s not that different, because the one count calls for an A down and the other a C down.

    The next question is whether we’re entering 2 of (1), or B of (4), which I guess you covered in the last post.

    Kevin

  20. Corey Rosenbloom Says:

    Kevin,

    I see your point – I think what I was trying to do was show a 5-wave structure for fractal wave 1 up. Wave 3 does have a 3-wave structure but iii is the shortest (which is why I chose not to fractalize it). It might be a better strategy to have 1 and 2 be that little blip, but my logic was to have 1 stand-alone.

    Notice I was sneaky – I’m letting the reader add his/her own interpretation. I just showed the fractal wave components of the structure without labeling the larger waves. Some think we’re still in a 4; some think the 5 has already completed. The fact that we broke 805 threw me off so I had to go back to the basic fractal wave structure and build from there.

    I find it hard to believe we’re about to, or are already in an up-impulse (meaning the primary 5 waves have officially completed).

    I don’t exactly have the words or Wave count for it (other than we just finished primary 3), but I believe we’re going into some sort of upward correction phase. The labels will fall into place later but we’ll all have to watch it very carefully as it develops.

  21. Charles Says:

    Hey Corey, I see you’ve been steadily climbing the Alexa rankings..good on ya mate!

    The chart..that mo divergence from Mar 1-9 looks rather steep. So I’m wondering, do you think the steepness of a divergence is any clue as to its validity(like the steeper it is the more likely it is to be a signal for a price reversal)?

    Also, you ever use stochastics? Maybe you could do a future post on that indicator..I would be interested to see your use/opinion of it.

    thanks!
    charleS

  22. Inq Says:

    Hi Corey,
    New to your site. I’ve been studying Elliott wave recently. Do you think our impulse wave 5 count from march 09 count has ended and that we are now headed downwards?
    Thanks
    Inq

  23. Anonymous Says:

    http://dshort.com/charts/bears/four-bears-large.gif
    Why shouldn’t the bear already been shot at march 9th (SPX 666)? Compare the red and the green SPX bear market ends in the link (sharply V-shaped) and adjust the dark blue one to have the upward rally from its -56.8% low in light blue: no financial Armageddon (yet)!

  24. Mark Says:

    The labeling of your Wave 5 on this diagonal is wrong. It occurred a touch earlier than you have labeled it, and the new high up to 833 SPX is actually a “B” wave with a 1-2-3-4 sequence down “C” thus far ( 3/31/09 ).

  25. Mark Says:

    My guess is that we should see the small 5th wave unfold April 1st ( it probably started in the sell-off of late Tuesday ) and will most likely target support at the previous 4th wave and a fib retracement of .382 at 769.50