Last week the S&P 500 fell to as low as 2025 and the majority of experts and market participants were expecting the weakness to continue this week. But instead of simply extrapolating the old trend into the future, we made a careful and comprehensive Elliott Wave analysis, in order to prepare our premium clients for the most probable developments. They received the following chart before the markets opened on Monday, May 23rd. It shows why this week’s rally in the S&P 500 is no surprise to Elliotticians.
To be honest, the decline between 2111 and 2025 was a real mess at first. However, by analyzing the pieces one by one, we managed to decipher the whole picture and read the message the hourly chart was sending. As visible, it shows a W-X-Y double zig-zag, developing between the parallel lines of a corrective channel. Wave W is an obvious three-wave pattern. Wave X is more complicated, since it is a corrective combination, including a running flat in wave (w) and a simple zig-zag in wave (y). Wave Y is no less interesting. In consists of an (a)-(b)-(c) zig-zag, where wave (b) is, again, a running flat, followed by an ending diagonal in wave (c). All these details led us to the conclusion that 2025 is likely the end of the entire pullback and higher prices should be expected. Now, let’s take a look at an updated chart of the S&P 500.
After a short-lived retracement to 2044 on Tuesday, the index began quickly rising. The invalidation level at 2025 was never threatened. On Wednesday, the S&P 500 was already trading above 2094. The Elliott Wave principle was once again able to prepare us for what was coming, while also providing key price levels to tell us if the count is no longer valid. Fortunately, most often than not, it stays valid.
