S&P 500 Elliott Wave: Still Looking for Matching 4th Wave

Within the five-wave trend, there are two temporary setbacks, wave 2 and wave 4. There are rules and guidelines for what to expect for wave 2 and 4. We can use those rules and guidelines to provide a framework for market analysis.

The rally from the April 7 low is viewed as a developing five-wave impulse pattern. Wave 2 of the advance is complete and there does not appear to be a wave 4 (yet) to couple with the wave 2.

The decline in wave 2 lasted about 47 1-hour bars and declined about 6.9% (see red arrow above). Therefore, we can anticipate a similar span of time and depth in price to alert us to a wave 4 decline.

So far, the corrections during this advance have been 2.2%, 2.1%, and 3.4% (see blue arrows). These corrections are less than half of the wave 2 correction. As a result, they don’t match up well as the 4th wave cousin to the 2nd wave.

Though it has been 54 1-hour bars since we’ve seen a new high, the depth of the current correction is shallow. Therefore, the odds are favoring the advance is still within a wave 3 or if SP500 is currently in a wave 4, this decline may dig deeper next week.

Either way, SPX would still need another rally in wave 5 to finish off the bullish impulse.

Current Elliott Wave Analysis

There are a couple of patterns we are following. Either SPX is in a developing wave 4 decline that falls towards 5,625 or wave 3 is still in progress to the upside.

The key level that distinguishes between these patterns is the May 23 low at 5,767.

If SP500 breaks below 5,767, then we’ll consider wave 4 to still be in development.

If SP500 breaks to new all-time highs, that will signal that wave 3 was still extending higher.

Bottom Line

SP500 hasn’t carved a cousin wave 4 to match up to wave 2. Therefore, the market will need about a 5-8% decline from the highs to match up better. An immediate decline below 5,767 would suggest wave 4 is late in development.

A rally to new highs suggests wave 3 is extending higher.

Either way, a wave 5 rally is still off into the future unless this wave count is incorrect.

Short-Term Bias: Bullish

Long-Term Bias: Bullish

Key Level: 5,767

Initial Target: 6,151