Published 30th November 2018

The S&P 500 reversed to the upside before reaching a lower low. Hence, we have a situation of cross-market non-confirmation to the NASDAQ 100. The US tech index marked a  lower low during the past trading week, which has not been confirmed by the blue-chips indices. Moreover, the Dow Industrials showed a clear island reversal into its last low. These patterns are very rare among the major indices. They indicate a significant shift in sentiment. The technical evidence suggests that downside trend has been stopped for the moment.

The good news with last week’s price action is that it clears up the technical picture. The US indices are now displaying a high probability setup.  It is bearish and signals that the rest of the counter-trend bounce is most likely subdued. The initial kickoff to this correction that started from the late October low displays a 3-wave advance to the upside. The Elliott wave framework does not have many options concerning a 3-wave advance at that stage. Price action in the S&P 500 is most likely unfolding a complex sideways combination. The grey sideways channel depicts the combination. It encompasses a black scenario, which resolves in early December to the downside. Moreover, the red scenario shows a potential extension, which kicks the can until early 2019 before eventually unfolding to the downside. A similar pattern unfolded in the EUR/USD in early 2018.

All in all, we expect the countertrend rally to be roughly limited to the boundaries of the grey sideways trend channel. The 2,800-2,820 S/R cluster is an important target.

The analysis above is a historical abstract of our S&P 500 Premium Analysis. Subscribers can access multiple timeframes, which are not displayed on this page.