About a month ago we published “Dow Facing Another “STOP” Sign, suggesting this US stock index might be ready for a large correction soon. Major stock indices are known to be confirming each other, so we decided to take a look at the S&P 500 and see, if we could find similar warnings there. The chart below shows what we found.
Just like in the Dow, the Elliott Wave Principle signals for a probable reversal in S&P 500 as well. It seems the index is in the final stages of wave III and we should prepare for wave IV. Furthermore, it looks like both indices, DJIA and the S&P 500, are forming the same reversal pattern – ending diagonal. The daily chart makes it visible.
If this is the correct count, the bulls could take prices above 2120. However, they should run out of power before reaching 2183, because this is the level, where wave 3 of the diagonal would become the shortest among waves 1, 3 and 5. That is why, instead of a steady rise, we think it is likely to see a significant decline. The weekly chart suggests S&P 500 could fall by roughly 300 points to around 1850, before the uptrend resumes in wave V.
