If the S&P 500 (SPX) can soon make a new all -time high, where does the January to February 2022 decline fit in the long-term Elliott wave count? An examination of the secular bull market rallies and declines reveal some fascinating clues.

The SPX – monthly chart courtesy of Trading View illustrates the most likely long-term Elliott wave count.

If the January to February 2022 decline is Primary wave “4” – boxed, then the bull phase that began in July 2010 and ended in January 2022 could be Primary wave “3”. There are several Fibonacci ratio relationships within Primary wave “3”. The Intermediate wave (2) drop was 21.5%. The supposed Intermediate wave (4) is probably an Elliott wave – Horizontal Triangle. The widest decline in the triangle was 35.4%.. The ratio of wave (2) to (4) is 21.5/35.4 = .607, close to the Fibonacci Golden Ratio of .618. Also note that the wave (4) 35.5% decline is almost equal to the Intermediate wave (1) growth rate of 35.5%.

Most of the time the calculations for price projections after a Horizontal Triangle are made at the termination point of the triangle – not at the widest part. In this case the termination point for the Intermediate wave (4) Horizontal Triangle is the October 2020 bottom ay 3233.94. The high of the supposed Intermediate wave (5) of Primary wave “3” was 4818.62 minus 3233.94 equals 1584.68. The growth rate for Intermediate wave (5) is 1584.68/3233.94 = 49%. In Elliott motive waves there’s usually a Fibonacci relationship between waves “one” and “five.” The growth rate of Intermediate wave (1) was 35.5% the ratio of Intermediate wave (5) to (1) is 49/35.5 = 1.380 close to the Fibonacci inverse ratio of 1.382.

The Primary wave “2” decline was 17.1%. The supposed Primary wave “4” decline was 14.6% a ratio of 14.6/17.1 = .853 – not a Fibonacci ratio, yet its tending wards equality. It’s possible that Primary wave “4” is not yet complete and may drop further and get closer to a 17.1% correction. We could have an answer to this question in the next one or two weeks.

The next blog will examine why the SPX could make a major top in the 4920 area.

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.
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