S&P500’s Fibonacci Perfection, But Decision Time

The Impulse Path to The Downside Is Still Preferred

Since mid-September, see here; I have been tracking a possible impulse move down for the S&P500 (SPX) from the mid-August high (i.e., five waves lower as per the Elliott Wave Principle (EWP) ). Last week, see here, I applied the ideal Fibonacci-based impulse pattern to the downside and found

“if the index wants to continue to follow the ideal impulse path, it should move lower to SPX3410-3515, bounce back to the ideal red W-iv target zone ($3680-3785), and then drop one last time to the perfect red W-v target zone (SPX3242-3345). By then, the SPX should be ready for a multi-month counter-trend rally.”

Figure 1. S&P500 daily candlestick chart with detailed EWP count and technical indicators

The day after, the index dropped to SPX3491 and rallied today to as high as SPX3763. Thus, the ideal target zones for red W-iii/c and W-iv? have been reached. So far, so good. Note red W-ii/b was 232p and lasted for four days, whereas the rally from last Thursday’s low is now 272p and is also four days. Thus time-price symmetry has been achieved. But that doesn’t mean the red W-v? will, with all certainty, materialize. Allow me to explain.

The Next Target Is Ideally SPX3242-3345 As Long As SPX3887 Is Not Breached

Last week I already outlined, “However, if the index does not comply and rallies back above the red W-i/a low (SPX3887), with a serious warning for the Bears above last week’s high ($3807), then this impulse path is invalidated.” These two levels are shown with the upper horizontal, dotted, blue, and orange lines, respectively.

Thus, albeit red W-iv? can still try to move a little higher (SPX3784-3817), the index cannot move above $3887. If it does, then the multi-month rally depicted by the simplified straight blue arrow is in play. Conversely, a drop below last Friday’s low ($3579) will be a severe warning to the Bulls, and the red W-v will be confirmed on a fall below last Thursday’s $3491 low (lower horizontal, dotted, orange, and red lines; respectively). From there, we can expect the multi-month counter-trend rally (black dotted arrows).

Thus, the S&P500 is still following an ideal Fibonacci-based impulse to the downside rather well and is, therefore, still on target for the 3300s. Only a break back above the September 6 low ($3887) will throw a wrench in the Bear’s work and tell us a multi-month Bear market rally challenging the August highs is already underway.

Whatever way we slice and dice it, a sizeable counter-trend rally is brewing and getting closer by the day. It is simply a matter of “pay me now” or pay me later,” with the latter option still preferred, but thanks to the EWP, we know where that preference is wrong.