Happy New Year!

I begin the year with a look at the long term chart of the cash S&P500 index. I don’t do this because I build Elliott counts from the longer to shorter timeframes; rather I do it to construct the framework we are operating in within the shorter timeframes.

2007 was an uptrending price bar on the Yearly chart. Two significant facts about this bar were one, that we made a new all-time high; and two, we failed to make a new all-time closing high. The market is essentially at the exact value it was at the end of 1999. Back then (at the end of the rip roaring bull move) if you had told someone the market would be lower in eight years you would have been mocked and labeled an idiot. After all, the market always goes up doesn’t it? The price pulse that began the upward move from the 2002 low of 768.63 continues. Note that the short moving average provided support during the decline from 2000 into the 2002-03 period.

I make wave counts using a certain methodology. One component is price fractals. These are shown on the chart using a diamond symbol. Note the fractals at the 2000 high and the 2002 low. I believe that these two points represent the ends of Elliott Waves.

Next I review the RSI indicator. Of note is that the index sits at 74.4. A reading this high indicates that the S&P500 is in a bull market within this time frame. I also observe that the 74.4 reading is well below the peak reading of 97.9 set with the previous all-time closing high of 1469.25 set in 1999. Since 2007 closed at 1468.36 we have a situation where both price and the indicator are below their highs. The magnitude of how far below (price virtually none; the RSI quite a bit) does not matter. We are at least two years away from any bearish divergence on the yearly chart.

So what do I know from this information? We are most likely in the late stages of an Elliott Wave Impulse pattern (made up of five waves labeled 1-2-3-4-5). I strongly favor the interpretation that the 2000 high is wave “Three” of primary degree from the 1982 low. This then implies that wave “Four” either ended at the 2002 low or continues to this date. That is, the 2002 low marks either the end of wave “Four” or wave “A of Four”. Furthermore, if the latter count is correct the fact that we have made a new high limits the type of pattern that may be forming to either a triangle or expanded flat.

So which of these two counts is preferred? Are we in wave “Five” or wave “B of Four”? We’ll next look at the Quarterly chart to see if we can make a choice.