S&P 500

Summarizing Our S&P 500 Outlook

Published 5th December 2017 & amended 16th December 2017

We forecast a short term correction before the S&P 500 eventually continues its trend to the upside.

Sizable and bumpy corrections are likely for US equities in 2018. They will be significant but nonetheless countertrend to the S&P 500 main trend to the upside. All in all we think that a trading approach will outperform a buy and hold strategy for US American blue chips over the coming decade.

Short Term Trend Analysis

Published 16th December 2017

Any potential version of wave iv° looks too short to be complete right now. Moreover a closer look at wave ii° shows that we should expect wave iv° to be relatively shallow and complex due to alternation guidelines. The conclusion is that wave iv° is not in yet. We’re looking for a 2%-3% correction in total until wave iv° fits into a valid elliott wave pattern.

We currently have two scenarios on the table. Our base case is the black count on the first chart below. It labels the market close to or at wave iii° top. We see alternation between waves (ii) and (iv). Moreover wave iii° is equal to a fibonacci 161.8% relationship of wave i°. The black count case clearly meets many of elliott’s rules and guidelines.

The shortcoming of this count is that it labels an ending diagonal at an earlier stage that we would usually label one (ED are rare & 1-2-1-2 combinations often look like EDs in their early stage).

In this case we’ve decided to go for the ending diagonal interpretation. One reason being that otherwise the S&P shoots outside of the light green acceleration channel. We do not have hints that this should happen at this stage (momentum & count so far). The second reason being the relationship between waves (i) and (v). Here we see a very small wave (i) kicking of and would not expect an exaggeratedly big wave (v). Wave (v) is currently about twice of wave (i), which is also a nice termination point.

The second scenario is a strong and impulsive wave action to the upside. A normally shaped impulse wave would trace out instead of our ending diagonal forecast. This would mean that the market breaks out to the upside of the green trend channel next week. Moreover this would mean a further extension of wave iii° to 261.8% for example.

We assign slightly more probability to our base case in the black count for the reasons explained above. We expect wave iv° to kick in shortly and retrace between the 23.6% and 38.2% fibonacci levels of wave iii°.

Please note that wave iii° may be already in on yesterday’s high. Another down-up sequence as in our chart below is possible but not mandatory.

 Medium Term Trend Analysis

Published 17th October and amended 16th December 2017

We conclude that there is a little more left of wave (5) as of December 2017. Medium term we are most likely in cycle wave I, which started at the March 2009 bottom. The best interpretation of the current S&P 500 trend as of December 2017 is a (5) of 3° of cycle wave I.

Our S&P 500 outlook suggests sizable correction ahead of us in 2018. We expect the correction in primary wave 4° to start in 2018. It should trace out as a deep and complex structure due to alternation guidelines.

Long Term Trend Analysis

Published 17th October and validated 16th December 2017

Long term the S&P 500 has completed a (IV) wave of supercycle degree at its March 2009 bottom from a long run elliott wave analysis perspective. The long term picture is analogous to the Dow Jones, which shows alternation between supercycle wave (II) and (IV). Wave (II) was sharp, simple and retraced a huge portion of wave (I) whereas wave (IV) finished as a complex and shallow irregular flat. Nevertheless, supercycle wave (IV) retraced more than a 38.2% fibonacci on a log scale. The wave action in between the corrective supercycle waves fits neatly together into an extended third supercycle wave.

Technical Analysis