This article is a rewritten and expanded version of the original piece from EWM Interactive titled “Elliott Wave Update on the S&P 500 – October 22nd, 2023,” authored by Ivo Petrov. The content has been restructured and expanded for clarity and depth while preserving the essence of the analysis using the Elliott Wave Principle.
Elliott Wave Update on the S&P 500 – October 22, 2023 (Expanded Analysis)
Author: Ivo Petrov (credit: ewminteractive.com)
The S&P 500, a cornerstone of the global equity markets, has experienced a prolonged and complex recovery phase since the aftermath of the COVID-19 crash in 2020. As of late October 2023, the index continues to fluctuate within what appears to be a significant Elliott Wave pattern. In this update, we’ll explore the current wave structure and assess the potential implications for investors and traders utilizing Elliott Wave Theory. We’ll also revisit historical context, examine wave counts, and expand on the potential outcomes heading into 2024 and beyond.
Historical Context: A Look Back at the Cycle
The larger perspective is critical when applying Elliott Wave analysis. By examining the long-term wave structure of the S&P 500, a clearer understanding of the direction and magnitude of potential moves can be achieved.
– The COVID-19 crash in early 2020 marked a significant low, likely ending a corrective Wave (IV) within a long-term impulse that began in the aftermath of the 2008 Great Recession.
– What followed was a strong impulsive surge, identified as Wave (V), culminating in the S&P 500’s all-time high in January 2022 near 4800.
– The subsequent market weakness can be labeled as the beginning of a new corrective sequence—suggesting that the entire impulse sequence from the 2009 low to the 2022 top may now be completed.
Key points about the long-term count:
– From 2009 to 2022, the S&P 500 completed a 13-year upward impulse wave.
– The correction from January 2022 is best interpreted as a three-wave pattern: an unfolding A-B-C correction.
– The decline in 2022 can be seen as Wave A of this correction, followed by a recovery which formed Wave B, and currently, we might be in developing Wave C.
Primary Elliott Wave Count: Intermediate and Minor Degrees
Zooming in, the focus becomes sharper on the internal structure of the recent price activity. Elliott Wave practitioners consider degrees of trend when analyzing market moves. At the intermediate level, we’ve been tracking a potential flat or expanded flat structure, particularly noticeable from the October lows of 2022 after the index sank below 3500.
Here’s how the structure appears to be laid out:
– Intermediate Wave (A): The decline from the January 2022 peak to October 2022
– Intermediate Wave (B): A powerful rebound that took the S&P 500 to new highs in July 2023, reaching as high as 4600
– Intermediate Wave (C): The current wave underway, projected to take the market lower again, possibly beneath the October 2022 low
Understanding Wave (B)
Wave B is almost always tricky to label in real-time. Wave B within flats can either retrace fully or exceed the start of Wave A, especially in what’s termed an “expanded flat” correction. In this case:
– The advance after October 2022 behaved like a textbook Wave B. Not only did it reclaim prior losses, but it also exceeded the initial Wave (A)’s beginning point, surpassing 4600 briefly in July 2023.
– This move is indicative of investor optimism returning amidst monetary policy shifts, soft-landing expectations, and improved corporate earnings.
– Often, Wave B in an expanded flat ends with significantly bullish sentiment, creating a false sense of a new bull market cycle.
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