SP500 – Weekly Analysis

CANDLES

SPX has been building a bearish case for over a week and finished Friday with a Bearish Engulfing on the weekly frame. From a candlestick perspective, this is a strong bearish signal; however, some technicals do not yet support the bears.

Meanwhile, the daily chart printed a strong bullish Inverted Hammer with firm support at the 50-DMA. With appropriate confirmation on Monday–Tuesday, this could mark the start of at least a short-term rally. On Tuesday, the 8-day frame will determine the mid-term momentum. For now, bulls and bears have roughly equal odds. The next two days will be key.

Short term: SPX — bullish, pending confirmation
Mid term: SPX — bearish, pending confirmation
Long term: SPX — bullish

Elliott Waves

Last Wave

I continue to wrestle with the last waves SPX formed and still have no clarity. The main issue is the circled upward wave. It is clearly corrective and cannot be an impulse or even a diagonal—in that case, wave 3 would be the shortest among 1, 3, and 5, which breaks the main EW rule. So I dug into Prechter’s book.

As the circled wave is corrective, we can treat this as the working hypothesis. I’ve marked the supposed Running Flat as W-X-Y; wave Y is only slightly longer than wave W, which fits the pattern well.

While I consider the green as primary count, I still keep the blue and purple on the table.

Now, looking at the micro wave the index formed off Friday’s low: it’s highly impulsive, with all sub-waves up forming clean impulses that follow standard Fibonacci ratios. There’s a fair chance that wave (i) or (a) off the low is complete; after a pullback, we’d expect at least one more comparable leg higher. However, an immediate extension of the initial wave can’t be ruled out. Monday–Tuesday will be pivotal for the index.

SUMMARY

After October’s close, SPX long term remains firmly bullish as proven on all frames 10D or larger. The bears tried to build the case exploring weakness on short term frames at the very end of October and they succeeded with making a bearish signal on the weekly frame which still requires confirmation. If the confirmation arrives next week, we will be looking for a much larger correction.

On Friday’s, however, bulls came to their senses and did not allow candles to lose several critical supports while forming constructive signals on multiple small frames. If this initial momentum gets follow up on Monday-Tuesday, the recent pullback will likely be capped and it will open a prospective for a solid rally.

Short term: SPX — bullish, pending confirmation
Mid term: SPX — bearish, pending confirmation
Long term: SPX — bullish

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Happy Trading!