S&P500: In The Zone

Technicals | May 13 2022

Bottom Line 12/05/22

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 4000 / 3723
Resistance Levels: 4600 / 4819 (all-time highs)

Technical Discussion

Reasons to remain cautious as short to medium term negativity  starts to weigh:
→ Elliott Wave count continues to have bullish momentum bigger picture
→ major support/resistance zone around 3550 – 3450 continues to hold strong for now
→ Yet negative market sentiment remains short to medium term

Our ‘Drop Zone’ sits between the 23.6% retracement of the Wave-[3] move north circa 4145, and the typical 38.2% pullback zone aligned to 3770. With Wave equality targeting the 4000 price zone. Price has recently tagged 4114 so the former has been achieved, yet the possibility of lower still being required from here remains very real.’

Volatility remains the name of the game here as bearish sentiment continues to dominate. The S&P-500 has now pushed well and truly into our drop zone, with wave equality circa 4000 met and with the 38.2% retracement zone now being lined up by price action. From an Elliott Wave perspective, we really like the symmetry that equality moves bring to the table, as it is normally a zone where buyers start taking an interest again. Yet to this point the response has been mute with last night’s session closing on its lows circa 3935.

Interesting to note that even though the Nasdaq and Russell-2000 have been weaker than the S&P-500, they both have not attained equality yet on their A-B-C moves south. For the Nasdaq, equality comes into play at 11000, with the equality target for the Russell-2000 aligned to 1580. The thing with these targets being attained is that it will mean both these Indices will have carved out 50.0% – 61.8% retracements. With these types of pullback depths being atypical for wave fours which is concerning. So if these numbers are attained, it could start indicating that we now have significant highs in place, which means the secular bull market has come to a close. There is another extremely bullish interpretation of the trend we have thrown out there on our charts, yet for now, we are not going to give too much commentary to this until our wave four trend positioning completely fails on us.

So the (A)-(B)-(C) zig-zag move on the S&P-500 presently has excellent symmetry. The Wave-(C) is generally the final move within these cycles and frequently unfolds as a 5-wave pattern which is exactly what we are witnessing here. It is just a matter of how deep the final wave-v of (C) wishes to travel. Asian markets including the ASX were negative again today showing a fair amount of volatility combined with price action trending south throughout their respective sessions. So it’s lining up to be a potentially crazy one on U.S markets tonight as well. What we need to see is a typical cleanout day locking in where price intraday pushes lower strongly yet ends up closing in the green towards its highs. These types of clean-out days bring out buyers and can provide the catalyst for a counter-trend move to kick into gear as a minimum. For now though the bears remain in total control.

Trading Strategy

Well, it hasn’t been a successful round of trading from our perspective in 2022 so far. We are now down to 4 active trades only and if this bearish rout continues to dominate, we will be back to 100% in cash sooner rather than later. We are certainly in the zone now for a bounce technically in the S&P-500, yet whether we get it or not remains to be seen.

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