The 11/30/21 blog “Bearish November Omen” noted that the intraday decline of the S&P 500 (SPX) since the 11/22/21 top looked corrective. Subsequently the SPX decline continued to look corrective.
The SPX – 15- minute chart courtesy of BigCharts.com illustrates the intraday action since the 11/22/21 all-time high.
The easiest way to explain Elliott wave theory is straight lines followed by crooked lines. The straight lines are the primary trend. The crooked or choppy lines are the corrections of the primary trend. Choppiness is the signature of corrections in any market. Note the four deep retracements , labeled “b” and “x” of the decline since 11/22/21.
If the there’s a change of the primary trend from up to down the most likely scenario would have a decline then a deep retracement of that drop. In the illustrated SPX chart this is the first wave “a” down followed by the first “b” up.
If the primary trend were down, most likely after first retracement there would be another decline – very deep, with a subsequent rally that’s shallow and far away from the price area of the first decline. This is not what has happened since the 11/22/21 peak.
Note on the chart the rally labeled “x” retraces into the price area of the first wave “a” down. The subsequent second “b” rally retraced into the area of the first wave “c” decline. The second “x” rally retraces into the price area of the second wave “a” down.
The SPX decline from 11/22/21 to 12/03/21 appears to be a Triple Zigzag. Within the Zigzag family of corrections there are Single, Double, and Triple Zigzags.
When you see choppy action with overlaps of prior bottoms/tops it’s most likely a correction of the primary trend. In this case it implies the SPX could rally back at least to the area of the all-time high made on 11/22/21.
Supporting evidence that the SPX decline from the 11/22/21 high is likely a correction comes from the momentum dimension.
Note the significant bullish divergences from the 15 – minute Slow Stochastic, RSI and MACD.
Additional evidence of a near term bottom is illustrated in the daily SPX chart courtesy of Trading View.
In mid – September the decline culminated with two trading day breaks below the lower Bollinger Band. In late September to early October there was a three-trading day breaks below the lower band. Now since late November there have been four consecutive days of moves below the lower band – rare and implies selling exhaustion.
Also note that moves back above the lower band signals at least a short-term uptrend. The SPX closed the 12/03/21 session above the lower Bollinger band.
The SPX appears to be poised for a rally into December. Prior blogs have noted a Fibonacci time cycle pointing to December 2021 as a time when a major US stock market peak could occur. If the SPX can make a new all-time high in December 2021 it could mark the termination point of the bull move that began in March 2020.