Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

S&P 500 Pulls Back As Expected: Rally Time?

Published 08/26/2022, 01:58 PM
Updated 07/09/2023, 06:31 AM

Already in June (see here) I alerted to a potential bullish wedge pattern forming that would target 4300+ on the S&P 500 (SPX). Last week the SPX topped at 4325, and I showed, using the Elliott Wave Principle (EWP) for the bullish option I am tracking, that the index

should ideally bottom between 4185-4095 (the green target zone; a typical 23.60-38.20% retrace of green wave-3) and then rally ideally to 4435-4525 for (green) wave-5 of (red) wave-i.

Currently, the SPX is trading at the low-4100s. So far, so good. Does that mean the correction is over? The hourly chart below shows more detail.S&P 500 1-Hour Chart

Figure 1. S&P 500 hourly chart with detailed EWP count and several technical indicators

Using this EWP option on the hourly chart, I found:

  • The SPX most likely completed five waves lower into this week’s low (grey wave-a)
  • Then, it bounced to the lower end (38.20%) retrace of the prior decline (grey wave-b), which was a bit lower than the expected -more common- 50-62%
  • Now it is trading at the lower end of the ideal target zone laid out last week (grey wave-c).

Given that the b-wave rally into today’s high was slightly shorter than anticipated (sorry, I cannot know everything to the T beforehand), the c-wave may reach as low as 4022-4033.

So, the Bullish count remains on track, and I have updated the EWP count that we are completing the c-wave of wave 4. But please remember, although there are now enough waves in place from the recent 4325 high to suggest the correction is close to complete, 4th waves can take many surprising twists and turns. So, the bulls are not out of the woods just yet.

Regardless, I do not want to see the index move below 3950 (red dotted arrow), as that would increase the odds this potential setup is not unfolding and places the market in the more bearish EWP count again.

Latest comments

looks like the bearish EWP will be the winner. time to adjust
apologies. app doesn't say "posted", didn't know it had already
decision time. closed at 3955
I was looking for the EWP indicator. Ty
Look at how bearish everyone here is... Not just the sentiment but actual positioning. Remember that most speculators lose $.  So dont be surprised if it rips off the lower trendline that is sitting in the 3900s.
Sir, really? Did you only do technical analysis without a peek on the significant fundamental change? How did you get this job?
not sure what your talking about, this is an excellent analysis and I totally agree
I must agree with Dr. Terry.The fact that you are putting out a bullish commentary and Elliott wave charting given the backdrop really can be quite misleading for people that are not informed nor really study.Clearly the federal reserve chairman stated eloquently that he will be causing pain going forward. That was the clearest message that he is no longer concerned about the markets and their opinion and the direction as he now fully engaged to finally… Fully engaged to bring down inflation!I think you need to provide a cautionary backdrop in your evaluation.
Real rally to the sharp cliff without safety chains.
Seriously, you're choosing to be bullish here?? Uh, no!!! The pullback on Friday was because Jay Powell FINALLY stood up to the markets and pushed back for the first time since 2018. He said to expect "pain," which was basically code word for “I'm going to cause unemployment to rise and send the economy into a recession and it's going to be painful but necessary to slow inflation". And NO the markets are not priced for a recession as PE's (even after last weeks pullback) are still at 18 times and that is TOO high. Just an open ended question at this point as to how bad the recession will be, hard or soft. So again, markets are heading LOWER no matter what your Elliot Wave is saying and you should be more careful in putting out bullish sounding articles at this point and instead be preparing your readers for what is to come.
Change your job ! You are not good financial advisor ! The market will drop bellow June low.
I would much rather dca into index funds in a bear market and hold long term. i will keep buying as long as the market keeps going down then do nothing when it eventually goes up
no reason to be in general equity anymore. don't fight the fed....they are telling you what they are doing. rate increases UNTIL NECESSARY and then it's not cutting, just holding. massive QT starting next month. Clear H&S top on equity PE ratios. At a minimum the mkt doesn't like uncertainty and if these aren't uncertain times I'm not sure what is. technicals and fundamentals are just bad.
With QT in sight for the next 6 month, where is the ammunition to push the stocks up to 4300? which stage of the market are we in now? contraction or expansion?
With QT in sight for the next 6 month, where is the ammunition to push the stocks up to 4300? which stage of the market are we in now? contraction or expansion?
With QT in sight for the next 6 mt
I do appreciate your analysis, while I do not fully underrstand EW principles. My struggle is when the projected bias seems bullish against a fresh reminder that the fundamental background is bearish. I would find this more useful or cohesive if there were some recognition of the non-technical catalysts. Nonetheless, thanks. It helps to balance my i dependent views.
Yes Rally - just like how you predicted the Nasdaq 100 would be at 18,000 in 4 months' time ;)...it will only need a 50% rally between now and then ;). ALL in the face of EVERY headwind pointing to a bear market and everything against the market (Inflation, tight labour, global debt, global recessions, global tensions, supply chains, QT only starting, a Hawkish fed)....but hey you keep pumping out these Bullish articles all based on trends seen in the past 10 years - despite the fact we are in a WHOLE other scenario and entering a new macro environment ;)
The key here is that he is using an hour chart, how can you have reliable consistency with the hour chart when EW is telling a different story in the daily. This is great info but you need to check the daily so u dont get blindsided.
Enjoy your comments on E waves and Fib!
All in short to 5000 eow
Rally?? The bottom isn't even in yet
Where did you get your crystal ball of negativity? You shorts got lucky but you will ***it again expecting sub 3000SPX.
B l o. w it
 I wouldn't touch the S&P until it goes below pre-covid levels >3,000. EVERY EVERY macro trend and headwind is against the market rising. The only thing bulls have left is blind faith that a miracle can happen. Inflation, tight labor, global recessions, global taxes, global tensions, supply chains, and everything else will just magically disappear to justify companies' overblown PE Ratios and Stimulus artificially inflated revenue streams. This time, the Fed cannot come to the rescue with QT if it wants to tame inflation. Based on Fed remarks on Friday - they are putting hitting inflation as the core plan regardless of how the stock market reacts.
lets see here, should I believe you or Michael Hartnett. hmmmmm
hopefully nobody follows your advice for their own sakes
Ignorant comment he has been calling this right since at least March
 He has been saying the markets should rise based on QE, Trillions in Stimulus and Trillions in Fed Printing Press Money (you don't need a crystal ball to know that stocks will rise when the Fed FLOODS the market with cheap money). The problem is - he looks only at recent trend lines and candlesticks and ignores EVERYTHING impacting the market (Inflation, wars, global trade, taxes etc etc). I would say 99% of his articles are bullish or have an end bullish slant. Lets ignore the fact 72%+ of economists are now predicting a recession in the next 12 months - the party goes on as emmmm that's all we've seen under QE for the past 10 years so that must continue...
Thanks you have been pretty spot on appreciate it. Anyone can be an online forum critic
In fact Powell just said something everybody knows let see next week drop to no bottom or recover after panic sell for my opinion everything is on track and going to right direction let see how market react
Agree
He didn't say anything new that is for sure
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.