Over the past two months, I used the Elliott Wave Principle (EWP) to forecast the S&P 500 (SPX) would reach SPX4550-4600 before a 200-300p correction should start. Two weeks ago, see here, I anticipated the correction had started because of A) the number of consecutive down days had exceeded prior correction lengths since June and B) SPX4546 was reached in a complete five-wave advance, C) there was negative divergence on the technical indicators (red dotted arrows).
In broad strokes, I was looking for “A (red) intermediate wave-iv pullback to SPX3985-4230 should be in the cards with the upper end preferred (downside disappoints and upside surprises in Bull markets). From there, I expect the 5th wave rally to complete (black) major wave-3 around SPX4767-5012 before an even larger correction starts (major wave-4), with a last gasp rally to around SPX6000 to finish the entire Bull market that started after the 1929 crash.”
However, the chart shows the detail I was looking for during this correction since Sept. 14. Allow me to explain below.
On Sept. 14, I detailed the preferred EWP-path I was looking for in this correction: a short-term bounce to ~SPX4500+/-10 (grey wave-b of green wave-a). Then a fast drop to ~SPX4340+/-10 (grey wave-c of green wave-a), and another rally to ~SPX4450+/-10 (grey wave-a of green wave-b) followed by another drop ~SPX4390+/-10 and rally to ~SPX4525+/-25 (grey wave-b and c of green wave-b; respectively). Let’s see how the SPX filled this in?!
The index bounced to SPX4485 on Sept.16, dropped to SPX4306 on Sept. 20, rallied to SPX4465 on Sept. 23, and sits at SPX4350. The EWP was again able to foresee the market’s twists and turns two weeks ahead of time. I, therefore, expect a rally soon again from around current levels, before the last drop to ideally SPX4230 kicks in (green, minor wave-a). However, if the index decides to drop to SPX4230+/-25 more immediately, I will view the correction as completing more quickly.
Bottom line
Eighteen days ago, I warned to “watch for a break below SPX4465 and especially SPX4365 to signal an intermediate-term pullback is underway, which should be an excellent buying opportunity for another run higher to SPX4800—5000.” Both breaks happened, and the SPX is now in a confirmed intermediate-degree pullback. Since the index is IMHO in a 4th wave, the correction should become complex and long-drawn. Just as I showed here how it would fill in over the past two trading weeks, I expect more whipsawing over the next few weeks. However, if the market decides to drop to SPX4230+/-25 more immediately, I will consider the correction complete sooner than later.