Which Path for the S&P 500

• Posted by Greg Harmon
• on January 7th, 2016

I have posted the Elliott Wave chart for the S&P 500 above probably 50 times over the past year. Ever since it started to look like Wave (III) was ending and Wave (IV) starting. I have also written about Wave (IV) being flat in comparison to Wave (II) which was a strong downward correction. These are just Elliott Wave Principles. They can hold or not. but they have been holding since the bottom in the S&P 500 since 2009.

The last 6 months have certainly added a lot of uncertainty to the market view day to day. Periods of strength ending at resistance and periods of weakness finding support. With outside market catalyst, like the current dislocation in China, sentiment has been swinging like a pendulum in a tornado. And the longer the markets do not head higher the louder the case for a correction has become. Louder does not make it right but it is another sign of confidence building for a downside move.

With this back drop it is time to dig deeper into that Wave (IV). The chart above gives some rough guidelines. Even a flat Wave (IV) should go through a A-B-C pattern. This is always easier to see in hindsight. And with that edge, the A move in August is apparent. What was not so clear in the last 2 months of the year was whether the quick pop over 200 in the SPY in mid September was a B or not. And if it was the pullback at the end of the month a C, leading to the start of Wave (V). This would follow on to the impulse higher (1) and retrace (2) in red. This path would look for (2) to end before 186.93, the low at C.

Is this the correct path? We still do not know. Because the blue path could also be valid. This path move from the August low at A to a high at 211.66 for B in November. In this path the final leg of the corrective Wave, C, does not have a downward bound insight. Starting to understand some of the bravado and ramped up debate in sentiment now?

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