Five Waves Up About Complete. Expect Three Waves Back Down
Using the Elliott Wave Principle (EWP), already in September last year, our primary expectation for the S&P500 (SPX) was to bottom at around $3200-3300 for a large (blue) Wave-A and then rally to $4300+. See here and here.
So far so good, as the index bottomed on October 13 at $3491 and has since rallied to $4100 by December 1. It dipped to $3764 on December 22 and has staged another 220p rally, which we anticipated in our subsequent last few updates of 2022. We stated then, “Thus, the primary expectation for a continued move lower to around $3750 was validated. Besides, there are now enough waves to consider the decline from the December 13 red W-b high complete.”
The rally from that low has been in five (green) waves. See Figure 1 below. Alternatively, the current rally from the December 22 low is still only in green W-3. Regardless, from the EWP, we know that five waves up are followed by three waves lower.
For Now, Our Primary Focus Is $3850 and Then $4375-4500
In our last update, we set out three criteria to know if our primary focus (rally to $4300+) would play out
- Hold [the December 22] low and not break below the 76.40% retrace at $3635.
- Break back above … $3890.
- Break above $3930, followed by the December 13 high.
Except for taking out the December 13 high, the market completed all steps and did so in an impulsive manner (five waves up). Since C waves consist of five smaller waves, the current rally should only be red W-i of black W-c of blue W-B. As such, we anticipate a red W-ii soon, ideally down to $3850+/-25, before the red W-iii to ideally $4275+/-50 kicks in. See the green dotted arrows as our anticipated path in Figure 1.
Our primary expectation from September last year is still on track. Besides, as expected, the S&P500 has rallied strongly since our last update on December 2022. Based on the current price action and knowledge of the EWP, we consider the expected multi-day correction to ~$3850 a low-risk buying opportunity. And unless the index breaks back below the December 22 low, with a first warning below $3825, we see no reason for this pattern not to unfold.