S&P 500 Update: The Correction Came as Anticipated; the Low-4000s Are Still on Tap

view original post

4th waves are often quite tricky with lots of twists and turns

As I stated last, “The beauty of the EWP is that we know with certainty in an impulse, the 3rd wave is followed by a 4th wave correction and then another 5th wave. Besides, the 3rd wave is made up of five smaller waves. In this case (black), major-3 comprises five (red) intermediate waves: i, ii, iii, iv, and v. Most likely intermediate wave-iii of major-3 has topped. Thus wave-iv is logically most likely underway, which means wave-v of major-3 is still pending. I expect wave-v of wave-3 to complete around SPX4800-5000.“ A voila, there we have it: wave-iv is underway.

Please note 4th waves are often quite tricky with lots of twists and turns (they can become any of 7 types of different flats or an almost endless combination of triangles). Unfortunately, corrections are thus not as straightforward as impulse waves because of the overlapping price action; every move consists essentially of three waves: e.g. (green) minor waves a and b in Figure 1 above.

Thus, my motto “anticipate, monitor and adjust if necessary” is now more than ever applicable. Based on the current price action from the All-time high (ATH) to the SPX4306 low, I prefer this correction to unfold as a more extensive flat correction. I am tracking the price action down to the 5-minute charts for my premium major markets members to ensure I get as many of each twist and turn correct. Such detail will help them short-term trading and better determine when and where this 4th wave should bottom.

For now, the daily chart above shows the ideal path forward over the coming days and weeks: grey arrows. The up and down arrows from the September 20th low have come to pass, with the (grey) minute b-wave of (green) minor-b now underway. Since EWP deals with the probability of possibilities, it could also be that this week’s down move is still only part of (green) minor wave-a. Regardless, I anticipated a more significant bounce back to 4500-4600 soon, unless the index decided to target SPX4230 more directly.

Bottom line: the correct perspective was the correction I anticipated only five days after the latest ATH. Since corrections are fraud with whipsaws and many twists and turns, I, therefore, view the pending correction as more of a buying opportunity than a chance to short or trade it the index. I anticipate a bottom soon around SPX4300+/-25 from where we should see a big ~200p bounce at a minimum, possibly a new rally to SPX4800-5000.

For a look at all of today’s economic events, check out our economic calendar.