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ELLIOTT WAVE ANALYSIS OF S&P500
Zoran Gayer
The first chart is the daily chart starting from the IMPORTANT LOW on 24 July. Though it did not start with the IRAQI WAR, its conclusion will be the resolution of the economic problems and the possible benefits from that war. One such benefit could be a low price of oil, which could be a great in assisting a world economic recovery. Rather than debate the issues, let us look at the price time action and let the charts and Elliott do the talking.

From the larger degree charts, the S& P is in a BEAR MARKET. (See previous postings.). The S& P on weekly charts is still in a downtrend. It would have break topside of the TRIANGLE in addition the major down trend line.

In strict original ELLIOTT, TRIANGLES occur only as FOURTH WAVES in impulses or "B" WAVES in corrections. Edwards and McGee , in their book Technical Analysis of Stock Market Trends have topping, bottoming and continuation TRIANGLES. G Neely in his book claims to have discovered what Edwards and Magee saw years ago. He has divided TRIANGLES into two groups that are, LIMITING TRIANGLES (of Elliott's type) and NON- LIMITING TRIANGLES (a special R. Neely type.) On page 5- 30, he states describes the difference between these two types claiming originality, "This listing is completely original, developed by the author after years of observing and carefully quantifying TRIANGLE behavior." In this case, I agree with R. Neely or more correctly with Edwards and Magee.

There is some debate whether the above [A] wave is a fourth wave and the [B] wave is a fifth. I have seen many Elliott counts with that assumption. Knowing that, I have continued with the TRIANGLE labeling. The reasons are as follows.

1. The July low is an important low. It is almost exactly half in linear terms of the high at 1552.87. Half = 776.43 and the actual low was 775. 68. Additionally, the low was rejected with a SPIKE REVERSAL in an exceptionally fast up move. This confirmed a low of substance was in place. The lows of 10 October and 12 March are also rejections of that same base. Note that this is based on zero to 1552.87 and not a normal way a range is measured. This is a GANN method. Since 24 July low is the closest to 50% range and the first I have given it greater importance. Order is important in this type of analysis. This is based on the assumption, that "THE MARKETS ARE SELF ORDER SEEKING MECHANISMS IN AN UNCERTAIN WORLD" . The greatest level of order is on that 24 July low. Thus, what follows is likely that the subsequent market action is being sustained by that low.

2. Wave [B] though it can be labeled as an impulse wave, based on its internal bifurcation points the wave came down as an almost exact THREE SEGMENTS. This wave has been labeled as an impulse by some. However, a wave of exact THREE SEGMENTS is a corrective waves and NOT an impulse. R. Neely's states that TRIPLE ZIGZAGS occurred as first waves in TRIANGLES and TERMINALS. In this case, it is the second segment of the IRAQI WAR TRIANGLE, thus, it there are some doubts. I would have preferred a plain zigzag here.

3. The original expectation was for a FLAT and not the above TRIANGLE. The above "C" completed with a TERMINAL and thus completed the assumed FLAT. The expectation was a break below the 24 July low or at least a test of them. On 12 July, the S& P rallied without testing the low in the well- advertised war rally that was triggered by a constant barrage of rumors of ever-increasing level of importance. (Capture of sons of Ben Laden, followed by capture of Ben laden himself, and finally that two IRAQI Generals had deserting Saddam. I have left the TERMINAL labeling above as a failure, rather than relabeling. Instead of calling it a "C" wave in a "FLAT" I have called it a "C" wave in a TRIANGLE. That makes the present wave up "E" wave.

4. If perchance the S& P breaks up out of the TRIANGLE that move would be a short- term BULLISH. That would require a reassessment of the BEAR position.

The above is a 60- minute chart and is a repeat of last week. Note that the S& P has now reached the red dotted diagonal le of the red rectangle. For this to be an "E" wave price action needs to drop below the red dotted diagonal line. At this stage it is still bullish and in contradiction to the larger degree charts This is based on the principle that a slower move nearly always corrects the faster, because the expectation is that the larger degree charts rule the lower, I have continued labeling the up move as a BEARISH "E" in the face of the strong BULLISH HIGH MOMENTUM UP MOVE from 12 March low. However to continue with the BEARISH VIEW I need the S& P to drop below the red dotted line and break out of the right side of the RECTANGLE. Though I do this differently, the same concept is covered in Mastering Elliott Wave by G. Neely in chapter 6.

The Topping pattern is a five point reversal of which waves green wave (A), (B), (C) are in. Wave (D) is in the process of reversing and (E) is still to start.

This is the same repeat of last weeks chart but with the additional price bars of last week The dashed blue line was the prediction. As you can see, it was a good forecast. In fact, it was accidental. Forecasting a whole week ahead and achieve the above results is very unlikely. In fact, I have change [B] bifurcation point up to a higher level (see the next chart).

The move to the high at on Monday was an exact ZIGZAG. In addition, the channeling was close giving a good trading point. Note that low was a 5- point reversal. This is labeled in magenta a, b, c, d, & e. An Elliott Impulse wave cannot have two extended waves of equal length and a short wave one. See extension rule on page 5- 4 and Rule of Equality on page 5- 8 in "Mastering Elliott Wave" Though some say R. Neely is not Elliott Wave, surely adopting what works is more important than being "labeling correct" or following so and so. After all the name of the game is to understand markets and make profits.

In the dark magenta ZIGZAG coming from the high, the second segment stopped short at 80.9% of the [W]. If the down move was the start of a major down move that should NOT have occurred. In fact, 80.9% is most likely to be the start of a TRIANGLE. Note that the next correction went to 83.7& and the next to 84.7%. This is the symmetry of TRIANGLES. I have therefore drawn in a TRIANGLE. Since this is the most likely outcome, the (D) swing of the larger topping 5- point reversal on chart two. One more up move is expected to complete (E) wave. In this case, if everything works out correctly, there is an excellent chance of picking the exact (E) wave completion as it occurs. A break below the magenta line would be bearish. By Tuesday, we should know where we are in this pattern. Even a bearish break is likely to return to the mid point of the triangle before breaking the lower magenta line.

CONCLUSIONS

  • The larger degree remains bearish suggesting a downside break to the IRAQI WAR TRIANGLE. An upside break would be short term bullish.
  • The "E" wave of the IRAQI WAR TRIANGLE on Friday touched the up moving red dotted line on chart two. A break below the red dotted line will make the up move slower than the down move suggesting a downtrend and endorsing the "E" wave of the IRAQI WAR TRIANGLE.
  • The move from the high on Monday is the dark magenta ZIGZAG. The third segment [Y] of the ZIGZAG was 80. 9% of the first segment [W]. This suggests that a consolidation is forming. Two retracements that followed are 83.7% and than 84.7%. Both of these ratios are for internal segments of a TRIANGLE. Thus, it is assumed that a 5- point reversal TRIANGLE is forming for the 'D" wave low. This suggests an upward break from this minor TRIANGLE that formed late last week. (See chart above).
  • A break of the lower magenta line containing the TRIANGLE will suggests that the down move has started earlier than expected.
  • If action breaks upward as expected from last week's minor TRIANGLE, the following (E) wave completion should be easy to identify as it is occurring.

Zoran Gayer

15 April 2003

DISCLAIMER
This information is intended for educational and discussion purposes only. Please direct any discussion to the site where you have obtained the update and not to me personally. I trade for a living. I do not have time to answer all queries. Directing your discussion to the posting site will allow others to participate in the discussions and resolve some of the issues independently. It will also give me the opportunity to learn from the comments. This update does not suggests nor recommend that any trading position to be taken. This is NOT financial trading advice. If you trade, and need assistance or advice, it is suggested that you seek a qualified financial advisor in accordance to the rules and regulations in your country.

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