Market Situation After Unexpected Event

Our thoughts and prayers go out to US President Donald Trump and First Lady Melania Trump for a rapid recovery from the Coronavirus.

This unexpected event trigger a panic in the financial markets and altered the near-term direction of the US stock market.  My previous post “S&P 500 Continues to Rise” gave a recommendation to go long S&P 500 (SPX) related funds if the SPX exceeded the high made on 10/1/20.  The subsequent decline has invalidated one of the alternate wave counts, therefore the recommendation to go long on a move above the 10/1/20 high is canceled. 

Another alternate wave pattern could be under development, an Elliott Wave – Expanding Flat.  In this structure the second phase – labeled wave (b) marginally exceeds the termination point of the prior five wave movement. This is what may have happened 10/1/20.  The third and final phase of the structure labeled (c) sub divides into five waves.  Frequently within Expanding Flats wave “C’’ is an Elliott Wave – Ending Diagonal Triangle, the only motive wave in which each sub-wave including waves “one” “three” and “five”  divides into three waves. 

Please see the SPX 30 – minute chart courtesy of Trading View.

Note the decline from 10/1/20 to the opening bottom on 10/2/20 divides into three waves.  The subsequent retracement of the one day decline so far is also a three – wave structure. 

A fascinating clue was made at the high point of this three-wave rally.  An exact .618 retracement of the prior three-wave decline was SPX 3369.10.  The high on 10/2/20 was 3369.10!  A Fibonacci .618 retrace is typically the termination point for wave “two”.

If the SPX declines into the target zone and the subsequent waves (iii, iv, and v) sub divide into three waves, an important bottom could be forming.