The good news is that the B wave in the SP500 is just about done. This fourth wave down late in the week foreshadows a big drop to come.
The waves up in ES/SPX are corrective and showing rather dramatic signs of coming to an end.
The wave structure of both the SP500 and the NDX has become quite complex and my analysis each night seems to take much longer to complete.
I had thought that when I started this weekend’s analysis, I’d be left with more questions than answers, but it turned out to be the opposite. It took some work, though.
This has led to a complete review of the higher degree wave structures of both these indices NDX/SP500). They’re aligned, but the structures are slightly different in that the SP500 is tracing out a flat as part of a corrective wave up from 2009, while the NDX is finishing an impulsive sequence. They will end at the same time.
We now seem to be at an important juncture. Once we get a small 5th wave up from the current interim low, it will finish off the last third wave for both indices. That means we have only fours and fives left to finish off each final sequence and that, in turn, means we have volatility ahead to complete the final topping process.
Whether we get finished before or after Christmas is a bit of a “crap shoot.” In any event, the top is very close.
This Week’s Chart Show
In this week’s Chart Show, I’ll go through the longer term prediction for both NDX and the SP500 and give you a detailed route to the top. The charts have been slightly revised, measured, and give a clear picture from 2009 to today, with a measured projection for the highs.
You’ll get a clear view of where we’re going from here and a rough timeframe for the top.
Spoiler: This 500 year rally is coming to an end relatively soon. For the complete story, log into the Chart Show on Wednesday evening (links at the bottom of this post).
Elliott Wave Basics
There are two types of Elliott wave patterns:
- Motive (or impulsive waves) which are “trend” waves.
- Corrective waves, which are “counter trend” waves.
Motive waves contain five distinct waves that move the market forward in a trend. Counter trend waves are in 3 waves and simply correct the trend.
All these patterns move at what we call multiple degrees of trend (in other words, the market is fractal, meaning there are smaller series of waves that move in the same patterns within the larger patterns). The keys to analyzing Elliott waves is being able to recognize the patterns and the “degree” of trend (or countertrend) that you’re working within.
Impulsive (motive) waves move in very distinct and reliable patterns of five waves. Subwaves of motive waves measure out to specific lengths (fibonacci ratios) very accurately. Motive waves are the easiest waves to trade. You find them in a trending market.
Waves 1, 3, and 5 of a motive wave pattern each contain 5 impulsive subwaves. Waves 2 and 4 are countertrend waves and move in 3 waves.
Countertrend waves move in 3 waves and always retrace to their start eventually. Counrtertrend (corrective waves) are typically in patterns — for example, a triangle, flat, or zigzag. Waves within those patterns can be difficult to predict, but the patterns themselves are very predictable.
Fibonacci ratios run all through the market. They determine the lengths of waves and provide entry and exit points. These measurements are really accurate in trending markets, but more difficult to identify in corrective markets (we’ve been in a corrective market in all the asset classes I cover since 2009).
To use Elliott wave analysis accurately, you must be able to recognize the difference between a trend wave (motive) and a countertrend wave (corrective). There’s very much more to proper Elliott wave analysis, but this gives you the basics.
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The Market This Week
Here's the latest daily chart of ES (emini futures)
Above is the daily chart of ES (click to enlarge, as with any of my charts).
On Thursday we had a large drop and Friday confirmed a fourth wave in both ES and NQ. That drop didn't necessarily negate the ending expanding diagonal (which seems to have ended a small third wave up), but it did destroy the small ending diagonal that was forming as a fifth wave. The drop seems to have been the result of a failed small 5th wave, which will require a new small fifth wave high.
Ending diagonals can end 3rd waves, 5th waves, and C waves.
Back up we go to a new high.
In terms of the bigger picture, my preference for the resolution of this very large B wave that we've been locked in since the low in February is for a C wave down after we reach that new high. This is the pattern of a expanded flat. However, technically, it could also be a running flat. At the present time, the B wave (that's the ABC wave up from about 2532) is longer than the A wave (marked as the 4th wave down from January 29, 2018). A regular flat registers as an expanded flat when the B wave is over 105% of the length of the A wave—ie, the B wave would need to reach above 2889, which is has done.
That means that the ES/SPX has multiple possibilities as to a target on the downside. Accuracy (in determining the most probable target) is going to depend upon both counting and measuring the waves to the downside. It's impossible to pick a downside target at this point in the process.
If we select all of wave 4 (on the chart—down from January 29) as the "A wave," then we're looking at an expanded flat. In that case, this outcome is the most probable:
- the C wave of a flat is typically 100 - 165% of the length of the A wave (so the target would be from 2532 - approx. 2360) - preliminary targets
There are other options:
- a running flat would trace out a C wave that is NOT longer than the A wave (in other words, it would not go to a new low). I regard this option as very low probability because it's extremely rare (I've only ever seen one of them). However, if NDX is tracing out a final impulsive pattern, its fourth wave should not be very deep, which may also restrict the length of the C wave in the SP500.
Volume: flat, and very low.
Summary: We're waiting for a top in a B wave, which will result in a C wave to a new low. My preference is the larger structure (from January 29) represents an expanded flat. Once the c wave (down) is complete, expect a final fifth wave to a new high. That fifth wave up to a new high will be the end of the 500 year bull market.
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Sign up for: The Chart Show
Next Date: Wednesday, October 17 at 5:00 pm EST (US market time)
The Chart Show is a one hour webinar in which Peter Temple provides the Elliott Wave analysis in real time for the US market, gold, silver, oil, major USD currency pairs, and more. You won't find a more accurate or comprehensive market prediction anywhere for this price.
Get caught up on the market from an Elliott Wave perspective. You’ll also get Andy Pancholi cycle turn dates for the SP500 for the balance of the current month. There’ll be a Q&A session during and at the end of the webinar and the possibility (depending on time) of taking requests.
All registrants will receive the video playback of the webinar, so even if you miss it, you’ll be sent the full video replay within about an hour of its conclusion.