Surfing the Elliott Waves: Competing views on how bearishly the S&P 500 market may drop in weeks ahead

There are at least three dominant theories of the Elliott Wave count in the S&P 500 market. One is that the markets have completed ABC down to mark a larger (A) wave, with the rally up being part of the (B) wave upward correction. Another is that the markets completed a large (1),(2), and (3) waves down from October 2007, and the rally is part of a wave (4) from which we'll see the markets roll over to new lows (with projections ranging from the high 300's to the 500's or 600's in the S&P 500 index) (and I know that Andre Gratian also has some projection levels at such lower areas if the markets head down there). Yet another is that the markets completed a five-wave series to finish a very large wave (1) down, and the rally is part of wave (2) up (yes, readers, if you have that subscription to that group, you will recognize that idea). Personally, I think that the first two ideas are the better ones to work with.

Tony Caldaro's Objective Elliott Wave is named in my default Elliott Wave label, as you can see, and I really appreciate his careful analysis and interrelationship with the indicators. He's been working with the idea that we saw the ABC down complete a very large wave (A) (I'm probably not "marking" these letterings the way he does, as I'm not as adept as he is with the counting system, sorry). And Tony is adamant that we did not see a complete 5-wave series down. On this, I do agree with Tony.

What about the other idea, that we saw waves one, two and three, and now up in four (4)? That seems to be what Andre Gratian is working with, and I've been wondering about. In fact, I've even been wondering if we are not in the first leg of a 4th wave, but the last leg of a 4th wave, in which the 4th wave can be an EW flat that saw its B-wave down go lower for some indices than others (e.g., the Nasdaq not digging a new low in early March, as the SPX did).

For those readers who really enjoy following all this closely, you might go to Tony's site, Elliott Wave Lives On (and I'll be posting his weekend update here as well, as usual). Then you can also check out the batch of comments on his Friday update, at Read comments (52). One of his commenters, "S2", has posted a chart with a possible count for the 4th wave idea, including S2's chartlink which is at http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3026812&cmd=show%5Bs149463786%5D&disp=P (check out S2's several comments in Tony's comments link to follow that discussion).

I don't want to get fixed on one EW count versus another, but I would like to point out that if the market decides it's a 4th-wave rally and there's a new low awaiting for a 5th wave down, then there's a good chance the SPX will descend to one of the Fibonacci retrace levels I marked on my monthly chart some months ago. Below is how my monthly SPX chart looks now. Keep in mind that the "A" and "B" markings, and the notes about Fibonacci levels, were associated with the hypothesis that we are in the "C" wave of a very large Elliott Wave pattern called a "flat". I didn't know when I made those marks whether or not we definitely are in a flat pattern's C-wave, and I still don't know. What I can say is that, if the idea of a 5th wave down is correct, we'll see the markets dig to new lows in the weeks ahead. And those new lows, along with the 5-wave series, could just perhaps be the C-wave of such a flat pattern.

I posted either here or at my UBTNB3 blogspot (see links at right) a while ago (sorry, too long ago to remember which site!), some ideas about what it would mean if this C-wave idea actually plays out. I wish I could report that it leads to the idea of the markets finally recovering and going to new all-time highs. While that would be a theoretical possibility, I regard that as very unlikely, and that instead we'd see a huge rally, followed by another huge bear market to lower levels still. (Also fitting with the big-picture chart discussions I posted here some weeks ago, including the Kondratieff cycles.)

First things first, however! First we've got to see whether the markets do indeed roll over, with the initial objective I see at approximately 790 in the S&P 500. And the market's behavior should then start to clue us in as to whether or not to brace ourselves for much lower levels. We'll be watching the near-term Elliott Wave counts as well as the technical and sentiment indicators of course.