Corey Rosenbloom revisits the Elliott Wave chart patterns on the SP500.
Update on the Two Competing SP500 Elliott Wave Interpretations
Courtesy of Corey Rosenbloom at Afraid to Trade
In a much anticipated post, I wanted to revisit the “Which Elliott Fourth Wave are we in Currently?” debate that I mentioned last December. I followed that post up with a mid-January update, “Two Competing Elliott Wave Counts on the S&P 500“. This post reflects the mid-March update of the two interpretations and how they have both played out in the markets.
Let me summarize the interpretations.
1. The Bullish Interpretation
States that we are Ending the 5-Wave decline that Began in 2007 (that we are in a Primary Wave 5 down… technically Wave (4) of circled 5.
I call this “bullish” because it means we just need one more swing down (in the Elliott Structure) to complete the 5-wave decline.
2. The … Bearish Interpretation
States that We are Still in an Extended Third Wave off the 2007 High (that we are an a Primary Wave 3).
I call this bearish because it implies that we are close to finishing the Primary 3rd Wave before embarking on a large ABC up… then we will begin a 5-wave decline to take us to lower lows than we’re seeing now. It’s also likely to trick so many people because the Primary 4th Wave rally is expected to be sharp (violent) and will lead so many people to believe we’ve put in a bottom… only to see price rip to new lows once the 4th Wave completes.
1. The “Bullish” Scenario:
Summary: The circled waves reflect a Primary Degree and that we are just one more swing away from completing this 5-Wave sequence of a Major C Wave (reference monthly charts).
It states that we’re currently in (4) of circled 5 of Cycle C.
Ending target: 600 – 650 within two/three months.
2. The “Bearish” Scenario
Summary: We are STILL within Primary Wave 3, and need Primary Wave 4 (perhaps up to 1,000 or 1,100) and then will need to complete Primary Wave 5 (to take us down to 500… or less. I shudder to write those words).
It implies that we’re currently in Minor 4 of Intermediate (5) of Primary circled 3. Of course, of Cycle C.
Ending Target: 500 or less by the end of 2009/beginning of 2010.
So which one is it?
It’s certainly open to debate, but we’ll know soon enough. Rather than get caught up in the long-term forecast, I think it’s important to focus on the following:
Both call for a test of the 666 low on the S&P for the next likely swing.
After that… things get murky. Both call for an up-move of potentially powerful duration… so much so that Elliott Wave International founder Robert Prechter has made the rounds on Financial TV recommending that all short-sellers ‘cover their shorts’ in anticipation of a potentially large rally-up in the Stock market.
My stance is that it doesn’t matter right now – both counts are in alignment for the time being. This will change as the strength/duration of the next up-move comes. Start looking then at the internals and structure to assess the next likely path for prices *once we get there*.
Accuracy in financial forecasting isn’t what’s important – it’s trading properly and managing risk within your expected views. Elliott Wave is one of many tools to help guide our analysis – we all know it’s never 100%.
I’ll do my best to keep you updated as more data comes in and the price structure forms itself clearer.
Until then, do the best you can with the information you have at your fingertips.
Corey Rosenbloom
Afraid to Trade.com
