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The S&P 500: Navigating a Potential Multi-Year Top

Back in early March, anticipation buzzed as investors hinged on the Elliott Wave Principle (EWP) for insights. The forecast pinned hopes on the scenario where the index—akin to the journey of bears past—would skyrocket above critical levels to hit the ~$5260 bulls-eye target. Fast forward and fast fall. The index failed to ascend above the March peak of $5264.85, plunging below key levels ($5100 and $5056) this week, aligning with the call made on the ~$5260 zone. A potential five-wave move is now in the spotlight, eyeing a descent to around $4800 for red W-a/i, with a potential bounce (red W-b/ii) waiting in the wings—yet only if the index stays grounded below the colored warning levels for the Bears.

Peering Into the Crystal Ball: Technical Insights

Figures 2 and 3 visually capture the “significant top” we foresaw. One scenario sketches out a grand ending diagonal from the March 2020 low (Figure 2), painting the tapestry of a bottoming out around $4600 for the black W-4 before a final surge to $5800+/-200 for the black W-5. Another scenario, a less sunny one, forecasts the end of the Bull run that trudged on since the ashes of the 1929 market inferno (Figure 3). Should this bleak future materialize, we could be staring down the abyss of a multi-year bear market, potentially lasting a decade, dragging the index back to ~$1500.

Assessing the Signposts: Weekly & Monthly TIs

The current weekly Technical Indicators (TIs) echo the echoes of late 2017 price action, hinting at a potential post-plunge ascent, akin to 2018’s upward spiral. However, the monthly TIs narrate a different tale, painting a picture of heavy negative divergence (as shown by the red dotted arrows in Figure 2), signaling that any rally cries will likely fall on deaf ears, short-lived and feeble.

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At this junction, the fork in the road remains hazy. But should the downward impulse illustrated in Figure 1 materialize, shifting the balance to a bearish harmony, the scales may tip towards the most somber scenario envisioned.