Correction Continues?
2022.04.13 11:47
In my last update I wondered if trouble was brewing as I found using the Elliott Wave Principle (EWP) “I do not want to see the index go below ES_F4378 as this possible [smaller] fourth wave becomes too deep, increasing the odds there will be no fifth wave. Consequently, the recent high was then based on only three waves up: wave-3/c. That means the index most likely experienced a counter-trend rally, which always comprises at least three waves: a, b, c. … and a retest of the February lows is then a real possibility.”
Yesterday, the S&P 500 Futures (ES_F) dropped to 4376, increasing the odds of a continued correction, and the rally to 5500+ will be postponed by many more weeks. Allow me to explain using Figure 1 below.
Figure 1. ES_F daily candlestick chart with detailed EWP count and several technical indicator
ES_F Daily Candlestick Chart
How the correction could continue
With the index going below 4376, the possible fourth wave I was tracking became too deep and the price overlapped with the possible wave-1?, bullish cut-off level (orange lines), which is not allowed in an EWP standard impulse pattern. Hence, the 1?, 2?, 3? paths I was tracking turned into only three waves: an a, b, c. Please remember, albeit the stock market trends higher longer-term and therefore five-wave impulses to the upside are preferred; when a rally starts, one does not know if it will be five waves up or only three. Consequently, one must label the rally as both until the market disproves one or the other. Due to the overlap, the 1, 2, 3, 4, 5 standard impulse pattern potential is disproven, and the a, b, c rally is now most likely.
This, in turn, means a more significant B-wave bounce most likely ended in late March, and the next C-wave lower should be underway. Since C-waves often comprise five waves, I have plotted the anticipated path for the next few weeks. Given the decline to today’s low counts best as a five-wave leading diagonal, with maybe a few marginal scribbles left, I expect a bounce to materialize soon to around 4500+/-25, from where the next leg lower, (green) wave-3/c, can occur, etc. See figure 1.
Bottom line
The Bulls fumbled the ball and allowed for critical price-overlap to happen, which strongly suggests the correction that started on the first trading day of this year will continue and last for several more weeks akin to the 2015-2016 correction. Therefore, I expect a bounce to 4500+/-25 soon from where the subsequent decline to ideally 4115+/-25 can start (green c/3). Once that target zone is reached, the index should bounce again to 4285+/-25 (4?), followed by a final decrease to 4015+/-25 (5?, c, 4).
For now, we can let the market do its thing, see how it will fill in this anticipated path, and make minor changes if necessary. Or, as I always say, “All we can do is anticipate, monitor, and adjust.”
