Credit: This article is based on analysis originally published by EWM Interactive on August 25th, 2023. The original work provides an Elliott Wave analysis of the S&P 500 index. This revised version expands upon their insights while incorporating additional data from financial sources to offer more depth and clarity.
Expanded Elliott Wave Analysis of the S&P 500 – August 25th, 2023
The S&P 500, a key benchmark of U.S. stock market performance, has shown substantial upward momentum since its October 2022 lows. As of late August 2023, traders, analysts, and investors are closely monitoring the index for signs of either an exhaustion of the bull cycle or merely a healthy correction within a larger uptrend.
To interpret and anticipate market moves, technical analysts often turn to Elliott Wave Theory, a method based on crowd psychology expressed in wave patterns. Developed by Ralph Nelson Elliott in the 1930s, this theory is particularly useful for recognizing trends and their likely reversals in financial markets. The August 2023 analysis by EWM Interactive used this approach to assess the S&P 500’s future movement.
This revised article takes a deeper dive into the Elliott Wave interpretation of the S&P 500 and complements it with other relevant market cues, economic indicators, and broader sentiment trends to build a comprehensive view.
Current Context of the S&P 500
– As of August 2023, the S&P 500 has retraced almost 76.4 percent of its sharp decline from the January 2022 peak to the October 2022 low.
– From October 2022, the market has broadly moved in five waves upward, suggesting a potential impulse wave—a fundamental structure in Elliott Wave theory.
– At its peak in August 2023, the index hovered above the 4,600 level, reigniting discussions about whether a new bull market has begun or whether this is still a bear market rally.
Interpreting the Wave Structure
According to EWM Interactive’s Elliott wave count, the S&P 500 has followed this general structure since the October 2022 bottom:
1. Wave (1) began in October 2022 at the low of 3,491 and extended through December 2022.
2. Wave (2), labeled as a corrective decline, followed in early January 2023.
3. Wave (3), typically the strongest wave in an impulse sequence, took the index well above the 4,300 mark by mid-year.
4. Wave (4) materialized in late July to early August as a shallow correction.
5. The most recent upward push is labeled as wave (5), which appears to have completed or is in the process of completing.
This structure resembles a complete first wave of a larger degree rally, possibly labeled as Wave I or Wave A in the broader context.
Key Characteristics Supporting the Elliott Wave Count:
– The structure adheres to the rules of impulse waves: wave 3 is not the shortest, wave 2 and 4 alternate in form and depth, and wave 4 doesn’t enter wave 1 territory.
– Volume analysis shows growing participation during wave 3, consistent with the guidelines set by Elliott Wave Theory.
– The S&P 500 has shown deceleration in momentum metrics (e.g., RSI and MACD) by the time of wave (5), indicating possible exhaustion.
If this five-wave impulse really marks the completion of a larger wave, then a more substantial correction is likely ahead, likely in the form of a wave II or wave B, depending on the broader wave degree being followed.
What Comes Next?
Based on these signals, the market may be on the brink of a multi-week or even multi-month corrective wave. Elliott Wave theory suggests this would unfold as either a Zig-Zag (5-3-5 pattern), a Flat (3-3-5), or a complex combination pattern.
Possible Correction Scenarios:
1. Zig-Z
Read more on USD/CAD trading.