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Elliott Wave chart analysis for the S&P 500 for 16th May, 2011. Please click on the charts below to enlarge.

S&P 500 daily 2011

We have seen a little further downwards movement which has invalidated two of our three hourly wave counts.

We expected any further downwards movement for this second wave correction to find support at the lower end of the parallel channel here on the daily chart. Wave 2 green is almost touching this trend line and so may be over here. A third wave of a third wave should begin from this point.

Wave 5 blue has an extended third wave at pink degree within it. At 1,553.42 wave 5 blue will reach equality with wave 3 blue. At 1,564.02 wave C black will reach equality with wave A black. This is our long held target zone for upwards movement to end.

Any further downwards movement for wave 2 green is highly unlikely, but if it did move downwards, wave 2 green may not move beyond the start of wave 1 green. This wave count is invalidated with movement below 1,294.70.

Primary wave 2 may not move beyond the start of primary wave 1. This wave count is invalidated with movement above 1,576.09.

Main Hourly Wave Count.

S&P 500 hourly 2011

I have reanalysed wave C orange downwards. Each subwave may be seen as a zigzag and so this may be an ending contracting diagonal which was over during Monday’s session.

Wave 3 purple of the diagonal on the hourly chart looks like a five wave impulse but when seen on the 15 minute chart it has a corrective count of 7. I expect it was most likely a zigzag.

Within wave 2 green zigzag there is no ratio between waves A and C orange.

There is nice alternation between waves A and C: wave A orange was an impulse and wave C a diagonal.

Within wave C orange ending diagonal wave 2 purple is a 69% correction of wave 1 purple and wave 4 purple was a 62% correction of wave 1 purple. Wave 5 purple has overshot the 1-3 trend line which is exactly what we should expect to see for an ending diagonal.

At 1,450.94 wave 3 green will reach 1.618 the length of wave 1 green. This target may be reached in a week or two.

For the first time in about 2 weeks I am confident in saying that there is a very high probability that this correction is finally over. All subdivisions are complete, structures look typical, and price may have found strong support at the lower trend line on the daily chart. If it does move any lower it may not be by much at all as the trend line is very close.

Price movement above 1,359.44 will give us added confidence in this wave count. At that stage the alternate below will be invalidated.

I present the alternate below as an outlier which we must consider. I expect it has a very low probability.

Alternate Hourly Wave Count.

S&P 500 hourly 2011

If we simply move the degree of labeling within the more recent downwards movement for wave C orange down one degree then we may have only seen wave 1 leading contracting diagonal within wave C orange.

Wave 2 purple may not move beyond the start of wave 1 purple. This wave count is invalidated with movement above 1,359.44.

This wave count has a very low probability primarily because it requires movement outside the parallel channel containing wave C black impulse upwards on the daily chart. While wave C black is still in progress we expect price to be well contained within this trend channel.