The 09/22/21 blog “One More Decline Likely” illustrated that the prime Elliott wave count had the S&P 500 (SPX) in a bearish series of “One’s” and “Two’s” down from the 09/02/21 top. This is still a valid wave count; however, evidence is emerging that suggest the drop from the all-time high could be only a correction within an on-going bull market.
The SPX hourly chart courtesy of Trading View updates what is now the best Elliott wave count.
One of the reasons to suspect the recent drop is corrective of the primary trend comes from the three mid – September price spikes, illustrated by orange asterisks. Choppy action is a characteristic of corrections, each of these spikes were deep retraces of the prior declines. When the primary trend is down the rallies are usually shallow.
Fibonacci analysis also provides clues that the drop from 09/02/21 is corrective. The drop from 09/02/21 appears to be a developing Elliott wave – Double Zigzag. Within the first Zigzag down Minor wave “C” is very close to being 1.618 of the length of Minor wave “A” – a common relationship in Zigzag patterns. The subsequent “X” wave rally is almost a bullseye hit of the Fibonacci outlier ratio of .666 or 2/3. The target for a .666 retrace was SPX 4465.71, the actual “X” wave high was 4465.40.
Hourly MACD and RSI + MA had significant bullish divergences at the 10/01/21 bottom and imply there could be more near-term upside action, perhaps one more trading day.
If the suppose Double Zigzag count is correct, after the current rally – Minor wave “B” is complete – there could be another decline that goes below the 10/01/21 bottom.
The next blog will focus on US stock market internal momentum indicators.