The 05/07/21 post “The Bull Strikes Back” noted . “If on 05/10/21 the bulls can’t push over 4238.04 watch S&P 500 (SPX) 4167.76. A break below that short-term support made at 11:44 AM – ET 05/07/21 could have huge implications for market direction.”
The 4167.76 bottom was on 05/06/21 not 05/07/21 sorry for the typo.
On 05/10/21 the bulls failed to push above 4238.04, the break below 4167.76 was made on 05/11/21 and confirms at least a short-term top is in place. The implications from an Elliott wave perspective are fascinating, but before examining the wave structure – factors from the time dimension need to be explored.
Almost all markets have bullish and bearish seasons. Additionally, the time of market movements can be forecasted using Fibonacci analysis.
The first step in examining the time dimension is illustrated in the daily Dow Jones Industrial Average. (DJI) chart courtesy of Trading View.
Within Elliott motive waves there’s usually a Fibonacci relationship of price/time between waves “one” and “five”. The DJI chart shows what is probably Primary wave “1”- boxed which rallied from 03/06/09 to 04/26/10, 74.0% in 286 trading days.
The next DJI chart illustrates the rally from 2020 to 2021.
The US stock market has a seasonal bearish time that begins late April/early May and lasts until October. The DJI has rallied into the second week of May, the extreme of the prior bullish season. If any of the three main US stock indices continues to make new highs into the third week of May, the rally could continue into August.
Fibonacci time analysis provides greater precision. Frequently wave “one” will equal wave “five” in price and time. So far, the DJI has rallied 285 trading days from the 03/23/20 bottom just one day short of equality with Primary wave “1”.
The frenzied rally of last few months has blown beyond price equality between Primary wave “1” and Primary wave “5”. However, the DJI has reached the next higher Fibonacci relationship. The DJI has rallied 92.6% since the 03/23/20 bottom. The Primary wave “1” rally gained 74.0%.
92.6/74.0 = 1.251 close to the Fibonacci ratio of 1.236.
The 30-minute SPX chart shows the intraday Elliott wave count.
It appears that and Elliott wave – Horizontal Triangle was completed on 05/06/21. The subsequent rapid rally is exactly what would be expected after a Horizonal Triangle is complete – a post triangle thrust.
The daily SPX chart illustrates how the intraday pattern fits within the larger pattern.
The intraday count is probably the final portion of an Elliott five – wave impulse that began 03/23/21. Fibonacci price analysis provides evidence to this theory. Intermediate wave (1) gain was 34.8%. The supposed Intermediate wave (5) gain so far is 13.8%.
13.8/34.8 = .396 close to a Fibonacci .382.
Long-term Fibonacci time analysis and seasonal factors indicate a significant decline may have begun. Fibonacci price analysis and Elliott wave structure suggest important resistance has been reached.
Traders are holding short 50% non-leveraged SPX related funds from SPX 4170.87. Continue holding short with a stop loss at SPX 4240.00.
If the SPX opens below 4170.87 short an additional 50% SPX related non-leveraged funds. Use an SPX move above 4220.00 as the stop loss on the second 50%. If the SPX opens above 4170.87 cancel the recommendation to short an additional 50%.