S&P 500 Elliot Wave Analysis -> 3110 then 3130 then correction
TLDR: The S&P 500 is about 2/3 way through its motive wave. It should have a peak around 3110 in the early in the week. A small pull back to around 3060, then one more rally to around 3130 by weeks end. After that expect a new corrective wave. The scale of this corrective wave will most likely set the tempo for the rest of the month (to the moon, sideways, or down the well).
You may need to zoom in and pan around to see it correctly. You may also have to uncheck auto scaling on the Y axis. The published idea does not accurately reflect what I see on my high res monitor. Sorry about that.
If you have been following my ideas over the last few months, then you have seen most of my analysis has been trendline based (support resistance and channels) and technical indicators (MACD, RSI, ADX) while tracking the VIX. I have also looked at several large time scale topics such as Wyckoff price cycle and historic accumulation/distribution cycles. Today I have dug deep into the technical analysis toolbox and applied Elliot wave theory to the S&P 500 (overlaid on IVV). In addition, I have overlaid some trendlines to help see the bigger picture. I also tried to label things the best I could.
Elliot wave theory looks complicated and confusing. I ignored it up to this point because of that. However, it is actually not that bad. Elliot waves are often used in automated trading algorithms (the real drivers of the market). I know the chart looks like a jumbled mess of lines, numbers, and letters but actually it is pretty straight forward. Please bear with me.
A little primer (some stolen from investopedia).
1) The theory identifies waves identified as impulse waves (motive) that set up a pattern and corrective waves that oppose the larger trend.
a) Motive (accumulation, MARKUP, distribution) followed by
b) Corrective (distribution, MARKDOWN, accumulation)
2) Each set of waves is itself nested within a larger set of waves that adhere to the same impulse/corrective pattern, described as a fractal approach to investing. This just means that the Motive/Corrective cycle can be seen at multiple times scales (seconds, minutes, hours, days, weeks, months, years). For example, the year wave is composed of month waves, month waves are composed of week waves, etc. They don't actually have to happen on exact day/weeks scales. There can be in between scales.
3) In general, Motive wave happen in 5 distinct waves (3 up and 2 down) -> 1) Up 2) Down 3) Up 4) Down 5 Up. There are some recent publications that claim motive waves may actually be only 3 waves in today’s market, but I did not apply that to this chart.
4) Corrective waves only happen in 3 waves (2 down and 1 up) -> 1) Down 2) Up 3) Down. However, it is possible to have a 5 subwave inside one of the waves of the larger correction wave.
5) There are rules to how each of the waves must act in relation to the other waves in sequence. The most important is that in a Motive wave the 3rd wave must be the largest (amplitude and time).
Ok, enough primer. How to read this chart.
1) There are two time scales of waves. One that last around a week (bright green and red) and another scale that last about half a month to a full month (dark green and red).
2) Motive waves are numbered 1-5
3) Corrective waves are labeled ABC or ABCDE.
4) It is best to start at the bottom on the far left and trace the analysis to the right.
The Elliot wave analysis is incredibly accurate for the last 2 months, IMHO. Remember, hindsight is 20/20. What does it tell us about the future? Well, it implies that we are about 2/3 of the way through a second major Motive wave. That means we still have not hit our peak for Wave 3 and still have yet to see the actual peak for this motive wave. Wave 3 should peak around 3110, a small pullback, and then one more push to 3130. After that the S&P should enter a Corrective wave.
The upcoming Corrective wave is a major decision point for the market. There are 3 main options as I see it.
1) If the bulls and irrational exuberance are too strong, then the correction will most likely be small (around Friday's low) and the market looks to make a strong run to the mid and upper 3000's, heck maybe 4000. There will be a bubble and a massive pullback someday (late summer, fall, winter, next year). You should sleep with one eye open waiting for the drop. There could be a lot of money to be made in this case, but be careful. Bulls rejoice, Bears miss $$$.
2) If the correction is moderate, then S&P will most likely trade sideways for some time, but not make any new highs (could test). This would most likely be a setup for a bull run later. Another (maybe less likely) outcome would be a setup to a larger correction. Lows likely around 2940 (mid-May highs) and highs around 3110 (Early June highs). Bulls and Bears are both unhappy.
3) If the correction is larger, then the most likely result will be confirmation of a bear rally and a retest of the mid may lows (2800). Bears rejoice, Bulls lose $$$.
Hope this provides some helpful insight. The market is a lot more about fundamentals than it seems given all of the talking head and market news, IMHO. Finding a model that best fits the situation is hard, and remember models are just approximations of the real thing (ignore lots of variables). Now, that does not mean vaccines, tweets, and trade wars don't affect the market in unpredictable ways. Take my analysis as just an idea.
Good luck and happy trading.
You may need to zoom in and pan around to see it correctly. You may also have to uncheck auto scaling on the Y axis. The published idea does not accurately reflect what I see on my high res monitor. Sorry about that.
If you have been following my ideas over the last few months, then you have seen most of my analysis has been trendline based (support resistance and channels) and technical indicators (MACD, RSI, ADX) while tracking the VIX. I have also looked at several large time scale topics such as Wyckoff price cycle and historic accumulation/distribution cycles. Today I have dug deep into the technical analysis toolbox and applied Elliot wave theory to the S&P 500 (overlaid on IVV). In addition, I have overlaid some trendlines to help see the bigger picture. I also tried to label things the best I could.
Elliot wave theory looks complicated and confusing. I ignored it up to this point because of that. However, it is actually not that bad. Elliot waves are often used in automated trading algorithms (the real drivers of the market). I know the chart looks like a jumbled mess of lines, numbers, and letters but actually it is pretty straight forward. Please bear with me.
A little primer (some stolen from investopedia).
1) The theory identifies waves identified as impulse waves (motive) that set up a pattern and corrective waves that oppose the larger trend.
a) Motive (accumulation, MARKUP, distribution) followed by
b) Corrective (distribution, MARKDOWN, accumulation)
2) Each set of waves is itself nested within a larger set of waves that adhere to the same impulse/corrective pattern, described as a fractal approach to investing. This just means that the Motive/Corrective cycle can be seen at multiple times scales (seconds, minutes, hours, days, weeks, months, years). For example, the year wave is composed of month waves, month waves are composed of week waves, etc. They don't actually have to happen on exact day/weeks scales. There can be in between scales.
3) In general, Motive wave happen in 5 distinct waves (3 up and 2 down) -> 1) Up 2) Down 3) Up 4) Down 5 Up. There are some recent publications that claim motive waves may actually be only 3 waves in today’s market, but I did not apply that to this chart.
4) Corrective waves only happen in 3 waves (2 down and 1 up) -> 1) Down 2) Up 3) Down. However, it is possible to have a 5 subwave inside one of the waves of the larger correction wave.
5) There are rules to how each of the waves must act in relation to the other waves in sequence. The most important is that in a Motive wave the 3rd wave must be the largest (amplitude and time).
Ok, enough primer. How to read this chart.
1) There are two time scales of waves. One that last around a week (bright green and red) and another scale that last about half a month to a full month (dark green and red).
2) Motive waves are numbered 1-5
3) Corrective waves are labeled ABC or ABCDE.
4) It is best to start at the bottom on the far left and trace the analysis to the right.
The Elliot wave analysis is incredibly accurate for the last 2 months, IMHO. Remember, hindsight is 20/20. What does it tell us about the future? Well, it implies that we are about 2/3 of the way through a second major Motive wave. That means we still have not hit our peak for Wave 3 and still have yet to see the actual peak for this motive wave. Wave 3 should peak around 3110, a small pullback, and then one more push to 3130. After that the S&P should enter a Corrective wave.
The upcoming Corrective wave is a major decision point for the market. There are 3 main options as I see it.
1) If the bulls and irrational exuberance are too strong, then the correction will most likely be small (around Friday's low) and the market looks to make a strong run to the mid and upper 3000's, heck maybe 4000. There will be a bubble and a massive pullback someday (late summer, fall, winter, next year). You should sleep with one eye open waiting for the drop. There could be a lot of money to be made in this case, but be careful. Bulls rejoice, Bears miss $$$.
2) If the correction is moderate, then S&P will most likely trade sideways for some time, but not make any new highs (could test). This would most likely be a setup for a bull run later. Another (maybe less likely) outcome would be a setup to a larger correction. Lows likely around 2940 (mid-May highs) and highs around 3110 (Early June highs). Bulls and Bears are both unhappy.
3) If the correction is larger, then the most likely result will be confirmation of a bear rally and a retest of the mid may lows (2800). Bears rejoice, Bulls lose $$$.
Hope this provides some helpful insight. The market is a lot more about fundamentals than it seems given all of the talking head and market news, IMHO. Finding a model that best fits the situation is hard, and remember models are just approximations of the real thing (ignore lots of variables). Now, that does not mean vaccines, tweets, and trade wars don't affect the market in unpredictable ways. Take my analysis as just an idea.
Good luck and happy trading.
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