One view of S&P 500 Elliott Waves says more pain now will help bulls later

In addition to those few (and unpopular) fundamental analysts who say it would be better to tolerate more failures and let the markets do their job of clearing out and starting over and upward again, there are technical methods that indicate this is likely to happen. Some Elliott Wave analysts are reading the tea leaves of equity market movements as saying that the S&P 500 and other equity indices will make another painful move lower, leading to a market bottom that will allow the bulls to take charge again and rally the markets much higher.

Elliott Wave analysis of market patterns is an interesting, instructive, but also sometimes frustrating exercise. There are some Elliott Wave analysis counts that say an interim low is done, so we'll see more of a rally higher, but then another, deeper wave down into the years 2010-2011. There's even one that says an important low was completed in November 2008, and that the markets will vault to new highs over the next few years.

After studying Elliott Wave and reviewing the market charts for many hours, this is my personal best guess: The markets are most likely to make another, painful move down, either now or very soon ... and that this will complete the important low that's needed for the markets to rebound and move significantly higher, and maybe to new highs in the years to come. My view doesn't preclude the idea of significant volatility with low points reached during the next few years, but I'm just saying that this view would enable those to be higher lows rather than lower lows.

Mind you, I'm not advancing this idea based on what I prefer or want. This really is my best guess based on studying the Elliott Wave principles. I'll grant you that it may be wrong - and here's one of the points about Elliott Wave that not enough people appreciate: it's rarely possible to confirm an Elliott Wave count, until more time has passed and the wave structure is "proven out" by subsequent market action. So, we'll never really know which of the competing, alternate Elliott Wave counts is "correct" until after it's over! Which is exactly why we blend numerous approaches here at UnBiasedTrading - to guide real traders and real investors in the markets day by day, week by week.

So without more ado, here's my best guess of how to count out the Elliott Wave pattern for the S&P 500's drop down from October 2007 to date, including the thought that there's a remaining wave down to complete the "C" wave of a larger expanded flat:

And here's the much longer-term chart that shows where I believe the expanded flat Elliott Wave pattern fits in, with its projected "C" wave that would meet trendline projections, a common Fibonacci extension level for such a "C" wave, and perhaps the prior level of a smaller-degree fourth wave which is also a common Elliott Wave target level for a correction like this:

We don't have to "vote for" this or any other particular Elliott Wave count, whether it's my ideas above, or Tony Caldaro's Objective Elliott Wave (which I do respect greatly, especially as it's clear he's spend considerable meticulous effort in analysing and measuring the wave structures), or any other Elliott Wave analyst. As I mentioned, we also have other technical analysis methods to help guide us. For example, just look at the MACD and the Stochastics/RSI indicators in the monthly chart (the one from 1981-present, above). It's plain to see that these indicators remain looking more bearish now, than the way they looked in 2002-2003 when they were in the mode of crossing up from the bottom-bearish positions toward higher levels.

I've also posted shorter-term charts showing the past two months of the S&P 500 market action and possible Elliott Wave counts on this smaller scale, for those interested in the smaller-scale action. And as I've mentioned and quoted Tony Caldaro's Objective Elliott Wave, Tony is also looking at two different, alternative Elliott Wave counts, one of which would similarly lead the markets to a new wave down. (You can find these prior posts under the "Elliott Wave" label to the right.)

So in addition to the Elliott Wave counts that say we're headed lower, either now or soon (or some even say after some more weeks go by), we can also reasonably believe that the markets won't signal they've bottomed and are ready to get positive again, until those indicators look a lot more like the way they looked in 2002-2003 by turning the corner to cross up again.