S&P 500 Elliott Wave: Still Looking for Matching 4th Wave

Technical analyst Jeremy Wagner suggests the S&P 500's rally from the April 7 low is a developing five-wave impulse pattern, with the current correction potentially representing either an ongoing wave 3 or a developing wave 4 decline. The key level to watch is 5,767; a break below this level would indicate wave 4 development, while new all-time highs would signal wave 3 extension, though a wave 5 rally is still anticipated, with an initial target of 6,151. Wagner notes the absence of a wave 4 correction comparable to wave 2, suggesting a potential 5-8% decline from recent highs may be needed.

Analysis

The S&P 500 (SPX) is currently analyzed using Elliott Wave Theory, suggesting the rally from the April 7 low is a developing five-wave impulse pattern. Wave 2 of this advance, characterized by a 6.9% decline over approximately 47 one-hour bars, is considered complete. The subsequent corrections, measuring 2.2%, 2.1%, and 3.4%, are notably shallower and thus do not align with the typical characteristics of a wave 4, which would be expected to be comparable to wave 2. Consequently, the market is likely either still within an extended wave 3 or is in the early stages of a wave 4 decline that could deepen. A critical pivot level is identified at 5,767; a break below this level would suggest wave 4 is developing, potentially leading to a decline of 5-8% from recent highs to better match the wave 2 precedent. Conversely, a rally to new all-time highs would indicate wave 3 is still extending. Regardless of the immediate path, the analysis anticipates a subsequent wave 5 rally, targeting an initial level of 6,151, maintaining both short-term and long-term bullish biases for the index.

Key Decisions for Investors

• Monitor the S&P 500's price action relative to the 5,767 level, as a break below may signal a developing wave 4 correction, while sustained trading above or new highs would support the continuation of wave 3.
• Investors should be prepared for a potential short-term pullback of approximately 5-8% from the highs, which would represent a wave 4 correction, before the anticipated resumption of the uptrend.
• Consider maintaining a bullish outlook, as the Elliott Wave analysis suggests a final fifth wave advance towards an initial target of 6,151 is expected, irrespective of whether an immediate wave 4 correction materializes or wave 3 extends further.