S&P 500 – Bottom In. Is a Larger Top Around $4500 Next?

The Powerful Foresight of the Elliott Wave Principle

Two week’s ago, see here, we found using the Elliott Wave Principle (EWP) for the S&P500 (SPX) that it was likely close to a local top, and stated

“Thus, while we now expect a last … W[ave]-iv and W[ave]-v to fill in … to ideally $4395+/-5 and $4415-4430, respectively, it also means upside potential is currently very limited as the green W-4 back down to ideally $4270-4305 looms. Once the green W-4 is completed, we should expect another rally, green W-5, to $4470-4500. However, should the index drop below $4270 and especially $4230, the market has most likely begun the next leg lower of the Bear market to ~$2800+/-1000. In the meantime, whereas most were thinking we were crazy about our expectation for the market to rally to $4300+ last year, we have arrived.”

Fast forward, and the index peaked the day after our article was posted at $4448 and dropped to $4328 this Monday, June 26, only to now sit at $4448 again. See Figure 1 below. Thus, the SPX topped and bottomed only 0.4% and 0.5% above and below our ideal target zones. And it is now on its way to the $4470-4500 zone set forth two weeks ago: irrefutable proof of how well the EWP works.

Fibonacci-confluence Around $4500

Based on today’s price action, we expect the index to complete the orange W-5 of the grey W-iii at ideally 4460+/-5, then a grey W-iv down to ideally $4425+/-5 followed by a last grey W-v to ideally $4470-4485. See Figure 1 above.

This upside target fits well with the 161.80% extension of red W-i, measured from red W-ii, and the 76.40% retrace of the 2022 Bear Market. Both are ~$4505+/-5. See Figure 2 below.

Since we still view the index in a counter-trend rally (Blue W-B), we anticipate a three-wave advance: black W-a, –b, and –c. The latter will subdivide into five waves: red W-i, ii, iii, iv, and v. Of those, red W-iii should soon complete at ideally the 161.8% extension. Typically, red W-iv then moves back to around the 100.0% extension (~$4240) before red W-v kicks in, so -in this case- ideally, the 176.4-200.0% Fibonacci-extensions ($4575-4676).

The index will have to drop below the red W-i (February 2) high at $4195 to start to suggest the counter-trend rally W-B has already completed, and the index is working its way lower to the $2700-2900 zone. Please note these upside levels have been on our radar since October last year. See here when we were looking for the index to challenge the August 2022 highs ($4300+).