Many jitters are hitting the market – U.S. presidential election, Fed-Fund rate hike expectations – at the same time.
On daily time frame the index has reversed the trend. On weekly time frame it has fallen below a previously broken resistance level – the high of 2015. On November 3, price is at 39-week SMA. It has been above this line since the week of March 14, 2016, with only one breach. Technical damage is beginning to show.
The index is above the uptrend line from the 2009 lows and above 89-week SMA. Last time it touched 89-week SMA was during the week of June 27, when it bounced off and formed a low that was the last swing low. The price hasn’t made a lower high / lower low sequence.
Last day of the week ending on September 9 saw the largest percentage drop for S&P 500 since June 24, following the Brexit referendum. For the first time since July 8, the index had a swing of more than one percentage from previous close – a stretch of 43 days. On the weekly chart, not much technical damage has happened. The price has come back to the breakout point from the previous chart pattern – a rectangle trading box.
The index is also above the uptrend line from the 2009 lows and above 39-week and 89-week SMA. Last time it breached these lines was during the week of June 27, when it bounced off 89-week SAM and formed a low that was the last swing low. The price is making higher highs and higher lows so we will still consider the trend to be up though the sharp decline on Friday puts it under pressure.
After making the bottom in March 2009, S&P 500 has been on a uptrend. We can use Elliott Wave to analyze this move. Our assessment, using Elliott Wave rules and guidelines, is that we just completed wave 4 of the wave structure. Mind you Elliott Waves are of various degrees and one wave may contain various waves of smaller degree. The wave structure that we have identified is of long-term duration.
The start of the wave sequence is from the low of 666.79 reached in the week of March 2, 2009. The wave ( I ) ended 1370.58 during the week of May 2, 2011. This wave included a smaller wave structure denoted by numerals 1, 2, 3, 4, and 5. In this motive wave, the wave 3 is an extension.
The wave 5 is followed by a corrective wave denoted by A, B and C. The wave C also indicates the end of wave ( II ). This was the low of 1074.77 reached during the week of October 3, 2011.
The wave ( III ) is an extension wave. This wave too contain other motive wave sequence of smaller degrees. For brevity, and to avoid chart-cluttering, we did not mark them. The wave ended at 2134.72 during the week of May 18, 2015.
This was followed by a corrective wave A, B and C, which had a structure of flat. This corrective wave ended with wave ( IV ) at 1810.10 during the week of February 8, 2016
Since then another wave sequence of smaller degree has started. The wave 1 of this lesser degree motive waves ended 2111.05 during the week of April 18, 2016. The wave 2 ended at 1991.68 during June 27, 2016.
Elliott Wave Targets
Using the guidelines for measurements we can establish some targets for the wave ( V ) of the higher degree motive wave.
Using the guideline that if one of the motive waves is an extension then the other two are either of same magnitude and duration or one of them is 61.8% of other. Wave ( I ) lasted for 113 weeks and gained 703.79 points. This gives us a target of 2513.89 and an estimated date in April 2018. This is 15% above the current levels. Using 61.8%, we get a target of 2245.05 by May 2017. This is 2.9% above current level.
The other scenario is when the wave ( I ) is 61.8% of the wave ( I V ). This gives us a target of 2948.92 in May 2019.
We can also estimate the wave ( V ) using the emerging smaller degree motive wave since wave ( IV ). The wave 1 ended at 2111.05. Since wave 3 can not be smaller than wave 2, it needs to end at least beyond 2292.63, which in turn means that the wave ( V ) needs to go beyond that level.
Rectangle Trading Box
Between April 2014 and July 2016, S&P 500 was in a rectangle trading box. The upper limit is bounded by the high of 2134.72 and the lower limit is bounded by the low of 1810.10. The measured targets of this pattern are (i) 2459.30 using a 100% extension; (ii) 2335.30 using 61.8%; and (iii) 2659.90 using 161.8%
(i): The probability of a level breaking is shown above is for the current condition based upon the EMA sequences
(ii) R2 break probability based upon the fact that the R1 is already broken. So are the probabilities calculated for R3, S2 and S3