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S&P 500 Update: With Third Wave Complete, It's Decision Time

By Dr. Arnout ter Schure Stock MarketsOct 05, 2022 02:05PM ET
www.investing.com/analysis/sp-500-update-with-third-wave-complete-its-decision-time-200630706
S&P 500 Update: With Third Wave Complete, It's Decision Time
By Dr. Arnout ter Schure   |  Oct 05, 2022 02:05PM ET
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Before we get started, let’s see how things have fared to asses if we are still on the right track.

  • A month ago, I had warned using the Elliott Wave Principle (EWP) that “if the bulls can [not] push the S&P 500 back above $4,120, and the bears manage an impulse lower from the August high, the path shown in Figure 2 becomes the preferred option.”

That path, by the way, pointed to the low-3000s. The bulls failed to break SPX 4120, and the bears managed an impulse lower. Now, the index is trading in the mid-3000s. So far, so good.

  • Three weeks ago, I then shared: “A break below the early September low of SPX 3886 opens the door for the impulse pattern as shown with an ideal target zone of SPX 3515-3400 for (green) W-3/c, then a potential W-4 rally back to ideally SPX 3675-3785 followed by the last drop to ideally SPX 3230-3330 to complete W-v od W-c of W-A.

The index broke below SPX 3886 on Sept. 16, and last Friday it bottomed at SPX 3584. It rallied 200p since, to SPX 3792 yesterday. Thus, the S&P 500 came within less than 2% of the ideal target zones set forth weeks ago for this important low, showing the remarkable accuracy of the EWP.

  • A week later, I showed “the preferred view thus remains that of an impulse lower, but the bears do not want to see the index move back above SPX 3900, as that would start to suggest only three waves lower and a more complex pattern that can still allow for [as low as] SPX 3680+/-20, where W-c = W-a … before the [rally to 4375-4545] kicks in.”

The futures reached as low as 3560 on Sunday evening, whereas the cash market stalled at SPX 3584, and yesterday’s high came within 94p (2.4%) of the SPX 3886 cut-off. Thus, there are now three (green) waves down from the mid-August high (see Figure 1 below), and it is now decision time. Allow me to explain.

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

S&P 500 Daily Chart.
S&P 500 Daily Chart.

Figure 1 above shows the stock market has done three (green) waves lower from the mid-August high: W-1, 2, 3. Thus, the index can now decide if it wants to complete five (5) waves or only three (3) waves. Hence, the question mark “W-4?.” The dividing line in the sand remains at the SPX 3886 level (bearish cut-off). Why? Because the fourth wave in an impulse cannot move into the price territory of the first wave. In this case, W-1 is the Sept. 6 low at SPX 3886.75. Thus, if the index’s price moves above that level as we advance without going below last Friday’s low, the path to SPX 4250-4700 opens (see Figure 2 below).

Conversely, if the S&P 500 stays below SPX 3886 and breaks below last Friday’s low (bullish cut-off), then SPX 3230-3335 can be expected.

Figure 2. S&P 500 daily chart with detailed EWP count and several technical indicators:

S&P 500 Chart.
S&P 500 Chart.

Please know I provide my perspective of the markets based upon the structure of the price action. Because financial markets are probabilistic, which the EWP recognizes, I must maintain a primary and alternative perspective on how the market will move. If the market breaks that primary pattern by moving above or below key price levels, in this case, SPX 3886, it tells me that perspective is invalidated, and the alternative perspective will be adopted. Aka, “forewarned is forearmed.”

This saying is appropriate because this approach is no different from a general drawing up a primary battle plan and, at the same time, drawing up a contingency plan if the initial plan does not work out. After all, battles can evolve unexpectedly. It is how one must prepare for any battle, as nothing is set in stone. There’s no difference in approaching the financial markets. As such, I – or anybody for that matter – will never be able to tell you with 100% certainty how the market will move in the coming weeks, months and years. Just like the general cannot foresee how the battle will go because there are, in both cases, almost an infinite number of variables at work. But with the EWP at hand, I can present you with enough information to know where the stock market will go under that primary perspective. And when it is invalidated, based on specific price levels, you can adjust your trading positions accordingly.

I hope you recognize the beauty of this approach, as well as the accuracy and reliability of it. It allows me – and you – to view the market objectively using a mathematically based methodology. Moreover, the EWP combined with Fibonacci levels provide objective price targets and invalidation levels. Thus, when I am wrong in the minority of circumstances, one can adjust perspective and positions quickly rather than fighting the market, which is a fight you will never win.

S&P 500 Update: With Third Wave Complete, It's Decision Time
 

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S&P 500 Update: With Third Wave Complete, It's Decision Time

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Comments (19)
Amadeo RP
Amadeo RP Oct 14, 2022 12:04PM ET
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There is one thing that I don't agree with in your bearish/prefered count, Dr.  According to the count you describe in Fig1, it seems to me that iv-a levels reached in mid-August (around 4300/4325) overlaps by far with what you are labelling as i-a (mid-Feb minimum around 4125/4150). And this should not happen as per EWP, should it? Could you please clarify, Dr.? Thanks in advance
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 14, 2022 12:04PM ET
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Hi Armadeo, good observation, and question. Figure 1 shows a leading expanding diagonal a-wave. In diagonals, 1st and 4th waves can and may overlap. I like this option vs the larger a-b-c lower (fig 2) because it really signals the start of the multi-year bear market I already shared with y'all in June :-)
Amadeo RP
Amadeo RP Oct 14, 2022 12:04PM ET
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Got it. Thx for clarifying
Fa Cai
Fa Cai Oct 06, 2022 7:57PM ET
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Dr. Arnout ter Schure, Always appreciated very much for your timely pieces of Arts. Yes, the market was set to go up days ago, no matter how unpredictable it pretends to be.
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 7:57PM ET
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thank you
David Beckham
David Beckham Oct 06, 2022 4:07AM ET
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It sounds like ok it’s up or down the conclusion is you are paid for writing
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 4:07AM ET
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I am not paid for writing this. Wrong conclusion.
Jeff Page
Jeff Page Oct 06, 2022 2:10AM ET
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Fast wave 4? It looks incomplete but, yesterday day I put on a 381 - 386 call spread. MACD is a positive. However, I'm net bearish. Expiry is 10/07/22. Cost total was $0.67 ($67.00) per contract limited @ $386. Best case, I make $433, worst case I loose only $67. Best to all.
Kris Jay
Kris Jay Oct 06, 2022 1:57AM ET
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thanks for the analysis, dont know much about EWP.  what i gather is that if SP500 stays below 3886 and goes below Friday's low, it will go to 3200?  and if it goes above 3886 it will then go above 4200-4500? and is this a "closing price" or any intraday time it traverses 3886?   I suspect it will cross 3886 today, 10/6/2022 assuming no new negative news.   which doesnt help my short position then. :(.   chart doesnt have Q3 earnings knowledge though so if we hit 3886 prior to Friday and Friday's numbers follow ADP's and Q3 earnings/forecast are horrible we will not go to 4300 or so, IMHO.
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 1:57AM ET
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Hi Kris, you are correct "if SP500 stays below 3886 and goes below Friday's low, it will likely go to 3300, and if it goes above 3886 it will then go above to 4000+". That simple. Closing basis matter indeed.
Dan Ahlers
Dan Ahlers Oct 06, 2022 1:55AM ET
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Love the article. 2/2 on recent predictions and, as a cosch (as opposed to a war general) i can appreciate that we have an ideal and thoughtful game plan based on what we think will happen and how we can take advantage of certain situations, but we also need to adjust if things play out differently. I’m rooted in math and probability, but also understand that unforeseen or unexpected variables can sway the probability. How might I subscribe to follow your content more closely? Do you carry content on other platforms?
Dan Ahlers
Dan Ahlers Oct 06, 2022 1:55AM ET
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I have subscribed to follow you here, btw
Dan Lumsdon
Dan Lumsdon Oct 06, 2022 1:48AM ET
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thank you for your insight!
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 1:48AM ET
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you are welcome!
Mike Sim
Mike Sim Oct 06, 2022 1:16AM ET
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This guy….posting forum guidelines. Meanwhile he breaks them all himself in the comments. Whoever would take advice, let alone subscribe to someone this unhinged and sensative in the comment section everytime someone makes a “mean” comment to him on the internet- is not someone you should take serious…..do you see any other “authors” constantly get this worked up about people pointing out his many oopsies?
Ty VM
2ADV Oct 06, 2022 1:16AM ET
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Ponchas or whatever his name is also sensitive and gets super defensive in the comments
jason xx
jason xx Oct 06, 2022 1:16AM ET
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Ty VM cramer too the perma bear
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 1:16AM ET
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If you do not adhere to the guidelines, then I do not have to either. If you attack me personally, if you critique my work non-constructively, if you attack my character, etc. then I am fully allowed to defend myself and you will get the same treatment in return. Fair is fair. Do not hide behind these guidelines all of a sudden while not adhering to them yourself. I deserve to be treated with respect, dignity, and professionalism just like anybody else. If you do not do that, then why should I treat you any differently?!
David Beckham
David Beckham Oct 06, 2022 12:57AM ET
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They are analysts not traders they can just write whatever they want your win or list are Nono of their business
Dr. Arnout ter Schure
Dr. Arnout ter Schure Oct 06, 2022 12:57AM ET
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Wrong again. I am also a trader. I also manage two hedge funds and provide highly successful ETF system-trading alerts to premium members.
Mark Manley
Mark Manley Oct 06, 2022 12:55AM ET
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Nice roll-up, appreciate the insight
 
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