The SPX plunged 95 points or 3.3% yesterday. In this article we will tell you about a mistake we made, namely missing the forest for the trees, so you do not make it yourself next time.
The S&P 500 is included in our premium packages and subscribers receive updates on it before the market opens every Monday and Wednesday. With almost everyone in the financial services industry talking about an imminent stock market collapse, suffering a selloff like yesterday’s was not a matter of “if”, but of “when”. While it is very difficult to answer this question, the Elliott Wave chart of the S&P 500 shown below actually managed to put us ten days ahead of the current plunge.
This 3-hour chart was sent to subscribers before the market opened on Monday, October 1st. As visible, it gave us not one, not two, but three reasons not to join the bulls above 2900. First, there was a perfect a-b-c-d-e triangle in wave (4), which meant the SPX was already in the last wave – (5) – of the larger bullish sequence.
Second, the wave structure of wave (5) could already be seen as a complete five-wave impulse and, as the theory states, a three-wave correction was supposed to follow. And third, the RSI was showing a strong bearish divergence between waves 3 and 5 of (5). By the time we had to send an update on October 10th, the S&P 500 had dipped to 2862. So far so good. Then we send this 15-minute chart update. And ruined everything.
As a rule of thumb, the patterns on the bigger charts are more stable and always have the advantage over those on the smaller time-frames. That is why our premium analyses always begin with the weekly and daily and go down to the hourly charts. We rarely include sub-1h charts into the analysis, because the patterns there are not very reliable.
The 15-minute SPX chart revealed something which looked like a regular a)-b)-c) flat correction down to 2862 and a very small five-wave recovery to 2895. This meant that as long as 2862 remained intact, more strength could be expected. “Not so fast”, said the market.
Going with the 15-minute over the 3-hour chart was the same as missing the forest for a single tree. 2862 got breached almost immediately after the bell and reminded us that relying on a bullish setup on a 15-minute chart while the bigger time-frames scream “sell” is clearly a mistake.
In Elliott Wave analysis, the bigger time-frames always have the advantage. Forgetting that fact, like yours truly did with the SPX yesterday, can lead to missed opportunities. Remember that the next time you find yourself digging deeper and deeper into the sub-hourly charts.
What will the S&P 500 bring next week? That is the subject of discussion in our next premium analysis due out late Sunday!