Index : S&P 500
Date : 21st May 2020
Time Frame : 4 Hr
Elliott Wave Analysis :
A quick recap on our blog’s SP500 Elliott Wave Analysis.
On the 20-02-20, the S&P 500 made an all-time high (ATH) at around the 3397 levels.
Since then, the S&P 500 index has been dropping like a fly, resulting in a massive downward spiral.
From an Elliott Wave perspective, this drop comes in the form of an impulsive [1][2][3][4][5] downward wave in black finishing with an ending diagonal down to the 2177 level on the 23-03-20.
This seems to have completed the first leg of the larger ABC corrective structure at point [A] in black.
Fundamental Perspective
Tthe FED has been pulling out all the stops in order to try to keep the economy from collapsing, triggered by the combination of 3 black swan events in the form of :
- Covid19
- Crude oil slump
- Central banks failures
With so much liquidity injected by the FED to support the economy and the Bond markets not looking that attractive.
“Hot money” seems to have flowed back into the Equities markets with valuations looking attractive at depressed prices.
From 23-03-20 onwards, the S&P 500 seems to be making a reversal up move despite none of the underlying fundamental issues showing any signs of recovery.
Initially when S&P 500 made a 5-3-5 Zig Zag corrective structure back up to close in on the Fibonacci retracement ratio of 61.8% ( Golden Ratio ) of the last major drop at around the 2936 level.
My Expectations
My initial Elliott Wave expectations were that the second [B] leg in black might be completing.
And was anticipating for the S&P 500 to reverse down from the Golden Zone to start the last [C] leg down.
Unfortunately, the allure of cheap money was too much for the markets.
Instead of the impending reversal, the SP500 pushed higher with a last-ditch effort, resulting in a smaller 5 waves move up to about the Fibonacci retracement ratio of 65% at the 2970 level.
The unexpected formation of this smaller 5 wave sequence totally invalidated my previous Elliott Wave analysis of a simple 3 wave ABC corrective B leg of the larger correction.
Now it seems like the current correction might possibly be a larger 5-3-5 [A][B][C] correction to rally up to test the next Fibonacci retracement level of 78.6% at around the 3107 levels.
Right now, we are still waiting for the smaller [A] leg in black to play out.
There is a possibility that it might do a 3 wave corrective structure dropping back down slightly to complete around the Fibonacci retracement 38.2% level.
Conclusion
If our SP500 Elliott Wave Analysis scenario plays out, we are probably looking at a Gartley pattern for the [B] leg in black.
Do be cautious when taking bullish trades in Bear market conditions and please DYODD.
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