S&P 500 Elliott Wave Technical Analysis – 21st May, 2014

Upwards movement invalidated the hourly wave count. Overall the wave count remains mostly the same, with upwards movement a continuation of a second wave correction which is now a clear three on the daily chart.

Summary: Tomorrow may begin with a small amount of upwards movement, before a third wave down begins. The third wave should have strong enough downwards momentum to breach the lower edge of a base channel on the hourly chart. I should be able to calculate a target for the third wave for you tomorrow.

This analysis is published about 09:37 p.m. EST. Click on charts to enlarge.

The aqua blue trend lines are critical. Draw the first trend line from the low of 1,158.66 on 25th November, 2011 to the next swing low at 1,266.74 on 4th June, 2012. Create a parallel copy and place it on the low at 1,560.33 on 24th June, 2013. While price remains above the lower of these two aqua blue trend lines we must assume the trend remains upwards. This is the main reason for the bullish wave count being my main wave count.

Bullish Wave Count.

S&P 500 daily 2014

This bullish wave count expects a cycle degree correction was over at 666.79 for a fourth wave, and a new cycle degree bull market began there for a fifth wave. Within cycle wave V primary waves 1 and 2 are complete. Within primary wave 3 intermediate wave (1) is complete.

There are several possible structures that intermediate wave (2) can take. It is most likely to be a zigzag, but it may also be a flat, combination, double zigzag or double flat. It could also possibly be a triple, but that has an extremely low probability. It may not be a triangle.

If intermediate wave (2) is a flat correction or a combination then within it we may see a new high above 1,902.17. For this reason there is no upper invalidation point for this bullish wave count. A new high above 1,902.17 would eliminate the bearish scenario as described in this analysis below.

Intermediate wave (2) should last several weeks and may last about two or three months. It should be choppy and overlapping and it should find support at the lower aqua blue trend line. A breach of this trend line by more than 3% of market value would see this bullish wave count discarded in favour of the bearish wave count below.

S&P 500 hourly 2014

Movement above 1,886 invalidated yesterday’s hourly wave count. This can only be a continuation of minute wave ii which subdivides best now as a double zigzag.

Within the second zigzag of the double, minuette wave (y), the final fifth wave looks incomplete on the five minute chart. We may see a little more upwards movement to begin tomorrow’s session. At 1,891 subminuette wave c would reach 0.618 the length of subminuette wave a. There would then be alternation between the two zigzags in this double: the first zigzag has its c wave close to 1.618 the length of its a wave, and this second zigzag may have its c wave close to 0.618 the length of its a wave.

I have drawn a “best fit” channel about minute wave ii. When this channel is clearly breached by downwards movement then we shall have confirmation that minute wave ii is very likely to be over, and a third wave down should have begun.

I had not expected minute wave ii to continue as a double zigzag. As a single zigzag it was already close to the 0.618 Fibonacci ratio of minute wave i, and it was nicely in proportion to minute wave i. Now it is continuing further as a double zigzag it is longer in duration to minute wave i and deeper than 0.618 the length of minute wave i. Double zigzags are reasonably common, but triples are very rare. Once the second zigzag is complete the only way this correction could continue would be as a very rare triple. The probability that it will finally be over will be very high.

Minute wave ii may not move beyond the start of minute wave i at 1,902.17.

S&P 500 5 minute 2014

Bearish Alternate Wave Count.

S&P 500 daily bear 2014

This bearish alternate wave count expects that the correction is not over. The flat correction which ended at 666.79 was only cycle wave a of a larger super cycle second wave correction.

Cycle wave b is now a 143% correction of cycle wave a, just a little longer than the maximum common length of 138% for a B wave of a flat correction.

Cycle wave b is now a complete zigzag structure.

A clear breach of the large maroon – – – channel on the monthly and weekly charts is required for confirmation of this wave count. If that happens then this would be my main wave count and would be strongly favoured. Only once this wave count is confirmed will I calculate downwards targets for cycle wave c for you; it would be premature to do that prior to confirmation.

Within cycle wave c no second wave correction may move beyond the start of its first wave above 1,902.17.

Cycle wave c should move substantially below the end of cycle wave a below 666.79.