What a Fresh Five Year Low Looks Like

Oct 27, 2008: 10:12 PM CST

Today, the S&P 500 (together with the Dow Jones, NASDAQ, and Russell 2000) made a new closing low not seen since roughly March 2003.  Let’s take a quick look at this development on the monthly chart and look at a possible, simple Elliott Wave count interpretation.

The S&P 500 Monthly Chart:

Beyond getting deep in the analysis, sometimes it’s just a good idea to pull back the timeframe and see where we’ve come and how fast we got there.

In less than a year’s time, we’ve almost destroyed the entire gain the S&P 500 index made in its 100% appreciation from the 2002 market bottom… bear in mind this constructive period took roughly five years to build.  There’s also a more than decent chance we could retest or even dip beneath those lows established in 2002, which would plunge us to decade lows.  I’ve drawn a blue line (across the volume bars) that represents these lows… now only 100 points away.

Volume has been surging on the index since mid-2007 and there’s no sign its letting up any time soon.

if you take a close look at the top right side of the chart, you’ll see that the S&P 500 index is down almost 30% in a single month… and the month isn’t even over yet.

What might be a simple Elliott Wave Impulse count?  Without getting too technical, notice that the “1” represents a possible first wave down followed by a three-month counter-wave “2” which gave way to the current possible (devastating) Wave “3” into fresh lows.  If this is the actual Elliott Wave count, then we should be expecting another counter-wave “4” up (perhaps to the 1,000 level or above) before giving way to the final Wave 5 that could take us down to lows beneath the 2002 levels (around 750).  Let’s not get ahead of ourselves, though or get too pessimistic with that possibility.

In other technical structures, price has made a significant new momentum low, breaching levels to the downside not seen before on the oscillator (the -100 indicator lows were the lowest lows seen on that oscillator.  Keep in mind it’s the difference between a 3 and 10 period moving average, and the current reading is near -200).

Also, price is beneath all key monthly moving averages, and the 20 month EMA is now crossing under the 50 month EMA.  The same EMAs on lower time frames (daily & weekly) already have crossed bearishly.  Keep in mind short-term momentum (and structure) precedes long-term momentum (and structure).

This is the current environment in which we trade, and though the larger structure does not change much, it is worth perhaps keeping a chart printed by your trading desk, updating it each month to note the most current bar – the structure will often remain the same.

Be safe out there.

*****

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Published by Corey Rosenbloom of Afraid to Trade.  Click to receive the Afraid to Trade Feed.

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3 Comments

3 Responses to “What a Fresh Five Year Low Looks Like”

  1. Lauer Says:

    Corey,

    I have two questions, and will be grateful for your insights:

    (1) For a probable wave 3, where the price is now being way below the EMAs, is there a parallel to other major correction periods say S&P in July 2002, or the Dow in November 1931?

    (2) What will likely be the retracement degree of counter-wave 4, let’s say wave 3 terminates at around 780?

  2. Anonymous Says:

    Is it a double top from 2000 and today?

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