It was a week to forget for stock market investors. The tech-heavy NASDAQ entered bear market territory, while the SP500 plunged 9% following President Trump’s “Liberation Day” global tariffs announcement. In our view, however, the stage had been set for a major stock market selloff much earlier. Trump’s trade war was just the catalyst, which pushed it over the edge.
Let us explain by starting with the hourly chart of the SP500, shared with our Elliott Wave Pro subscribers on Wednesday, roughly twelve hours before Trump announced his tariffs.
It revealed that the decline from 6147 could be seen as a five-wave impulse pattern, marked 1-2-3-4-5. The five sub-waves of 1 and 5 were also visible. Now, this was definitely not the prettiest impulse we’ve ever seen, but it didn’t violate any Elliott Wave rules. The fact that the following recovery to 5787 had a corrective three-wave structure tilted the odds in favor of the bears. As long as 5787 was intact, it made sense to expect a lot more weakness going forward in wave 3 of (3). The SP500 was trading above 5630 at the time of writing.
Later that day Trump did what he did and this is what happened next.
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What a difference can just a couple of days make sometimes. The SP500 opened with a big gap to the downside on April 3rd and another one the next day, before closing trading for the week at 5074, down 9.9% since our April 2nd update. 5787 was never threatened.
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But this makes it look easier than it actually was. The truth is that we can never trust just a single chart. In Elliott Wave analysis, small patterns must fit into bigger ones, in order to be considered reliable. That is why our analyses, published during weekends, usually begin with a weekly chart, then go through the daily or 4-hour ones and only then conclude with an hourly one, if needed.
In this case, the 4-hour chart was pointing south a whole month before “Liberation Day”.
Our Elliott Wave Pro subscribers saw this chart before the market opened on Monday, March 3rd. It showed that the uptrend we witnessed over the course of 2023 and 2024 had produced a clear impulse pattern. We’d labeled it I-II-III-IV-V and the five-wave structure of wave III was visible, as well. According to the theory, every impulse is followed by a correction. That’s why we thought the bulls were vulnerable near 5950 in early-March, and again near 5630 in early-April. Trump’s tariffs merely put things in motion, but the Elliott Wave stage was set for a notable selloff anyway.
This is far from the first time we’ve seen this dynamic. A complete pattern waiting for a catalyst. It happens all the time. We’ve already shown you how Elliott Wave analysis helped us to predict not only the Covid-19 crash, but also the bull market that followed. No matter how many times we see it, however, it never ceases to amaze us.
In our latest analysis of the SP500, published earlier today, we discuss if last week’s selloff is a buying opportunity or the start of something a lot more sinister…
