Is the S&P 500 Now Going to Rally to 4800?

Impulse Lower Complete

Those who read my articles regularly know that over the past month, we have been tracking an Elliott Wave Principle (EWP) impulse move (five grey waves W-i, ii, iii, iv, and v) lower from the September 4 high.

“…to ideally $4270+/-10, respectively. The latter target zone is also where green W-c equals the length of green W-a, measured from the green W-b (September 4) high. A typical c=a relationship. Moreover, it is also where the (red) 76.40% extension of red W-i resides (see Figure 1 below).”

We followed up on that prognostication two weeks ago, see here, when we found

“…the market’s waves decided to extend. … orange W-4 to around $4370+/10, followed by an orange W-5 down to ideally $4280+/-10, etc. Alternatively, the index completed the grey W-iii at today’s low and is now in grey W-iv, followed by only one last 5th wave lower to $4270-4230 … before the decline from the September 4 high can be considered complete.”

Fast forward, and the orange W-4 underwhelmed as it only reached $4303, which caused the orange W-5 to exceed and drop to $4238 to complete the grey W-iii. From there, a bounce to $4333 (grey W-iv) and last week’s decline to $4216 (grey W-v) materialized. Thus, as you can see, a lot can happen in two weeks, and it pays to stay informed more frequently than once every other week because the impulse move lower was slightly less than ideal, but all five waves are accounted for. Moreover, the cash index came within spitting distance of the 1.236x W-a Fibonacci extension at $4205, while the Futures Market (ES_F) bottomed at $4204 on October 4. As always, all we can do is

• Anticipate: five-wave decline with a c=a relationship targeting ~$4270.
• Monitor: five waves are unfolding but are also extending.
• Adjust: due to the extension; the W-c=1.236x W-a relationship is the next logical target.

New Bull Run Underway?

Thus, based on the EWP, our primary expectations for lower prices in a five-wave sequence a month ago came to fruition. We have been tracking the completion of this impulse decline since the September 4 high over the last weeks and confirmed that by Friday’s move back to the late September bounce high. Now, the SPX must move above at least last Friday’s $4324 high to strongly suggest the red W-iv low is in place and the rally to $4800 has started.

However, if the index drops below last week’s low, we must shift our focus. Namely below the previous week’s low, and especially $4165, will bring the current alternate EWP count, green W-4, 5 of red W-iii of black W-1 of blue W-C, back to the forefront. See Figure 2 below.

Why? That strongly indicates that the blue W-B topped this summer at $4607. The W-C will bring the S&P500 to around the mid-$2000s. See the green, red, and black dotted path in Figure 2 above. Again, until proven, this remains our alternative. Thus, once again, we have our parameters to determine where the index will go. The market is now getting one more (final) test: was Friday’s rally green W-4 or not? If it passes, then $4800 will be next. If it fails, then the low $4000s are next.