With the S&P500 recently making slight new highs, investors and traders are beginning to wonder if a correction is about to begin.
To understand a little more we need to look back on the weekly chart and look at the trend behaviour since the end of calendar year 2015. On the weekly chart below, we can see the longer-term trend over the last four and a half years has respected Elliott Wave rules very well. We can see that the recent 5th wave target zone was hit in Sept 2018, resulting in a new all-time high.
For the remainder of 2018 the S&P500 had a deep correction, pushing through the previous bullish trend’s Wave 4 pivot. It is usual for a trend to correct after completing a 5 wave Elliott wave sequence.
2019 price action and Elliott wave trends
For the first part of 2019, there has been impressive to move the market to a new high. However, SP500 didn’t have enough momentum to really break though this resistance zone around 2940.
Looking at the daily chart below we can see the Elliott Wave 3 was formed with these new highs and for the last 6 trading days we have been on a pull back. The Wave 4 probability zones are printed in Green, Amber and Red and we can see that recent support levels from the Wave 3 move, coincide with two of the zones.
We are looking for the S&P500 to pull back and test the first support level of 2800, within our green probability pullback zone. Then, we can measure the behaviour of this wave 4 with the Elliott Wave Oscillator and False breakout Stochastic indicators at the foot of the chart below. We are looking for a cross-over in the over-sold zone for Stochastics along with a retracement on the Elliott Wave Oscillator if the wave 4 forms in the green zone. If support is formed and the Wave 4 behaviour is as expected, we look for a 5th Wave move to create a new high.
(Understand a little more how the MT4 Elliott Wave Indicator Suite works here)