Update on the Two Competing SP500 Elliott Wave Interpretations

Mar 14, 2009: 4:38 PM CST

In a much anticipated post, I wanted to revisit the “Which Elliott Fourth Wave are we in Currently?” debate that I mentioned last December.  I followed that post up with a mid-January update, “Two Competing Elliott Wave Counts on the S&P 500“.  This post reflects the mid-March update of the two interpretations and how they have both played out in the markets.

Let me summarize the interpretations.

1.  The Bullish Interpretation

States that We are Ending the 5-Wave decline that Began in 2007 (that we are in a Primary Wave 5 down… technically Wave (4) of circled 5.

I call this “bullish” because it means we just need one more swing down (in the Elliott Structure) to complete the 5-wave decline.

2.  The … Bearish Interpretation

States that We are Still in an Extended Third Wave off the 2007 High (that we are an a Primary Wave 3).

I call this bearish because it implies that we are close to finishing the Primary 3rd Wave before embarking on a large ABC up… then we will begin a 5-wave decline to take us to lower lows than we’re seeing now.  It’s also likely to trick so many people because the Primary 4th Wave rally is expected to be sharp (violent) and will lead so many people to believe we’ve put in a bottom… only to see price rip to new lows once the 4th Wave completes.

1.  The “Bullish” Scenario:

Summary: The circled waves reflect a Primary Degree and that we are just one more swing away from completing this 5-Wave sequence of a Major C Wave (reference monthly charts).

It states that we’re currently in (4) of circled 5 of Cycle C.

Ending target:  600 – 650 within two/three months.

2.  The “Bearish” Scenario

Summary:  We are STILL within Primary Wave 3, and need Primary Wave 4 (perhaps up to 1,000 or 1,100) and then will need to complete Primary Wave 5 (to take us down to 500… or less. I shudder to write those words).

It implies that we’re currently in Minor 4 of Intermediate (5) of Primary circled 3.  Of course, of Cycle C.

Ending Target:  500 or less by the end of 2009/beginning of 2010.

So which one is it?

It’s certainly open to debate, but we’ll know soon enough.  Rather than get caught up in the long-term forecast, I think it’s important to focus on the following:

Both call for a test of the 666 low on the S&P for the next likely swing.

After that… things get murky.  Both call for an up-move of potentially powerful duration… so much so that Elliott Wave International founder Robert Prechter has made the rounds on Financial TV recommending that all short-sellers ‘cover their shorts’ in anticipation of a potentially large rally-up in the Stock market.

My stance is that it doesn’t matter right now – both counts are in alignment for the time being.  This will change as the strength/duration of the next up-move comes.  Start looking then at the internals and structure to assess the next likely path for prices *once we get there*.

Accuracy in financial forecasting isn’t what’s important – it’s trading properly and managing risk within your expected views.  Elliott Wave is one of many tools to help guide our analysis – we all know it’s never 100%.

I’ll do my best to keep you updated as more data comes in and the price structure forms itself clearer.

Until then, do the best you can with the information you have at your fingertips.

Corey Rosenbloom
Afraid to Trade.com

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27 Comments

27 Responses to “Update on the Two Competing SP500 Elliott Wave Interpretations”

  1. Andrew Stanton Says:

    Primary 2 and intermediate 2 of primary 3 were both sharp and that should lead one to expect complex 4th waves at both degrees. If that is true then I’d expect a flat or triangle intermediate and primary wave 4 with the operative one still not finished. Either scenario could feature the recent low as wave B and this past week’s rally as the beginning of C. Looks like it could be a while before clarity returns, especially if a triangle appears.

  2. Anonymous Says:

    Sir,

    Waiting for the Weekly update of Nifty view.

    Regards,

    Deepak

  3. Corey Rosenbloom Says:

    Andrew,

    If we get a long consolidation for a 4, I think it would confuse so many people indeed. A triangle would throw us all for a loop.

    There’s certainly alternate explanations out there, but these two seem the most compelling for the time being.

  4. Corey Rosenbloom Says:

    Deepak,

    No worries 🙂 I’ll have it updated soon.

  5. Andrew Stanton Says:

    The best part is even if we see a triangle or a C back to 950 or 1000 to finish the flat, the degree of that fourth wave will still be in doubt. Either one of the scenarios will still be valid!

  6. Anonymous Says:

    Prechter has an even MORE bearish interpretation– that we are still in Primary wave ONE down, ie that the 5-wave complex that will be completed soon are only intermediate waves of ONE Primary wave. So that we still have the powerful Wave 3 to go after a large wave 2 bear market rally. Again, does not make much difference to the short term position, but will change long term projections.

  7. Corey Rosenbloom Says:

    Andrew,

    Scary indeed!

  8. Corey Rosenbloom Says:

    Anon,

    I know – I’m not willing to discuss or consider that publicly just because of how insanely bearish that count would take us.

    I saw someone draw that out on a blogsite and I just thought “Wow.”

    That’s the beauty… or curse… of Elliott.

  9. tommyGun Says:

    There are many competitive counts and it is really difficult to pick the right one. I think the least probable scenario is further rally (look at CPC ratio). IMO, the first scenario is more probable than others.
    5 wave decline from 2007 would constitutte wave 1 of C. If look at the quarterly charts of any major indices it is clear that this was just the first leg of this bear mkt. I think we are getting very close to big bear market rally, which should take at least 6months (2 candles on quarterly charts) and take us even up to 10-11k pts on DOW. Then bear mkt will resume and take us far far to the south. Take a look at the long term charts and write what you see.

    Peace

  10. jeremy Says:

    Corey, any pull back this week after 4 straight up days, should not put us below 7000 on the Dow if the bear rally is still on track, resistance is now support?

    Faber suggests a rally till April, i think that’s about right as it would coincide with Q1’s results.

    Also, most bear rallys 1929-32 exceeded 20% upside, so we have just gone up only 6%, before the big Fractual wave 5 drop comes.

  11. Corey Rosenbloom Says:

    Tommy,

    I agree – it was difficult to come up with a primary and main alternate count.

    I’m hoping the first – the Bullish – scenario plays out. I don’t want to see the S&P 500 go any lower – it’s affecting too many people negatively, retirement accounts and everything.

    I agree that we’re due for a big, big rally. I just don’t know if it will be a primary 4 up (bearish) or the start of something bigger. We just know that a rally up seems the logical outcome soon.

    I’ll try to do a post on quarterly charts. Good thought.

  12. Corey Rosenbloom Says:

    Jeremy,

    I wouldn’t be so sure. If fractal 4 does make an ABC formation, the Dow could pop beneath 7,000 on the B down. It could also hold as support but nothing says it has to hold as support.

    A rally lasting to April would be logical, but it would have its little up and down waves along the way. Feels like a small down-wave is due soon. “B”.

    S&P gained 10% last week which was remarkable.

  13. mdecello Says:

    I subscribe to Prechter’s Elliot Wave Short term Update and he has the wave count as still in Primary 1 of c with Primary 2 coming up. Comments.?

  14. Andrew Stanton Says:

    mdecello, since anything is possible he could be correct this time but that would be a highly unusual configuration for a flat correction and not one I would play as the odds on favorite. Prechter is a very smart guy but he and his crew have a habit of fitting the wave count to their preconceived scenario. The best example is 1998 when he insisted a wave three crash was coming and counted what was a completed correction as an impulsive first wave down that Summer. Yes this may be the time the stopped clock is telling the right time but I would certainly keep other options than the end of Western civilization prominently in mind.

  15. Corey Rosenbloom Says:

    MDecello,

    No comment from me on such a devastatingly bearish count.

  16. Corey Rosenbloom Says:

    Without giving too much of my bias away, I agree with Andrew.

  17. Mickmock Says:

    Hello Corey, nice charts

    the flip side to even the more bearish count, is that even if you count the Oct top as wave (V) and not the (B) as EWI have, then this still lives a wave B rally and back to the prior 4th of 942 possible 955 etc

    there are as you might be aware the wave (C) counters from OCT 07 and the ABC counters from OCT 07

    as mnay look to a wave (2) for (C) the abc counters are looking for wave B, its the same set up, the only difference is the END GAME

    the odds still favour which ever way the count is looked at that we are likely to see lower over the coming months/years

    only the vicious rallies will catch many out, it really only becomes more bullish in the the intermiate term once 780- then 800 is passed, with then an objected of back to the prior 4th of either degree,(depending on how you want to count it) which is still 942

    One has to look at the relevance on how we got to the dizzy heights of 1500+, its was on leverage and that leverage is being pushed out of the system, i will simply be amazed i would we ever saw 1400 ever in the next 20 years,

    take it easy, excellent site, which i book marked

  18. Corey Rosenbloom Says:

    Mickmock,

    Thanks for reading and for commenting!

    True, there’s nothing saying the V *had* to be the 2000 top – it’s just generally accepted as such and the current 2000-2010 structure is envisioned an a large ABC (perhaps comprising a 4th Wave Expanded Flat).

    And true – I turned bearish early in 2006 and was just so surprised price managed to make it to its 2007 highs. Particularly after the Fed started cutting rates.

    For me, I’m more concerned with the short-term swings and structure and don’t get bogged down (as much as I can) in the Grand Supercycle debates. I try to take it one day and one swing at a time as best I can.

  19. Robert Says:

    This may only serve to complicate things further… but I have seen a third option. The third option is that we are already in the Primary Wave 4 rally. Proponents of this view hold that Primary Wave 3 just completed about two weeks ago with the recent low of 666 on the S&P.

    The latest 2 week rally was the first part of Wave A up in the Primary 4th wave. They see the subwaves (1) and (2) of of circled 5 on your charts as the final two components of a giant triangle that started around the end of November. They include these two waves in part 4 of Primary Wave 3.

    The drop from mid-Feb until mid-March, which you show as subwave (3) of circled 5, they hold to be a completed part 5 of Primary Wave 3 as it corresponds in time and scope to part 1 of Primary Wave 3. Which would make the recent rally the beginning of Primary Wave 4.

    I do not hold religiously to any of these 3 options and consider myself a novice when it comes to Elliot Wave, but I just wanted to throw this other alternative out there. I would love to hear what others think about this.

    I am certain the market will tell us pretty soon where we are at…

  20. TimCAD Says:

    I’d like to hear your thoughts about the impulse wave down we seem to be currently in. Are there any clues to indicate whether it will be normal, extended or foreshortened? – TIA

  21. Corey Rosenbloom Says:

    Tim,

    This morning’s upside action is calling that impulse move into question, but unless we break 805 on the S&P 500 (and we might do that today – March 23) then we would expect a 5-wave mini-structure down to test the 660 lows if not exceed them.

    My guess is that it will be a truncated or small 5th because the prior 3rd wave was grossly extended, and the fractal 3rd wave of the final 5th wave was also extended, so I would expect a tiny final fractal 5 (some argue we may have already gotten it, but I’m not quite there yet).

  22. Mark Says:

    Hey Cory,

    Time for an Elliott Wave Count Update!

  23. Anonymous Says:

    Looks like a Primary wave 2 up.. and we might even be in 3rd of 2 up ??
    http://turbino.wordpress.com/2009/03/27/primary-wave-2-up-adding-to-longs-on-all-dips/

  24. John Says:

    Really think Primary 3 ended March 6 and we are in Primary 4 right now. Looking for a protracted triangle in the Primary 4 position.

  25. Anonymous Says:

    As allways very interesting!

    But don’t you have a scenario that
    is more bullish? What if we are not going
    down to test the lows at all (in say 3-12 months).

    I am thinking a really nice move to eg. 1100
    or maybe even above 1300. Before going lower again.

    Is it possible to produce such a count?

  26. Anonymous Says:

    hey Corey
    it was nice to hear you on TDI with Andrew… I did some sleuthing… on Indian Stock exchange …. quite intresting theory ….

    Fuzzychaos.blogpsot.com

    have a nice day buddy

    ashu

  27. nike air jordan Says:

    Thanks for the update.