S&P 500 Faces 76.06% Correction, Elliott Wave Theory Signals $5,000 Stabilization

The S&P 500 is currently experiencing a significant correction, with two primary Elliott Wave counts being considered. The first count is more bullish, suggesting a stabilization around $5,000. The second count indicates a more bearish outlook, signaling a potential multi-decade correction. The next week will be crucial in determining which count is more accurate.

Elliott Wave Theory (EWT) can be applied to the S&P 500 due to its sufficient trading volume and price movement, which form discernible wave patterns. ewt posits that stock prices unfold in a series of impulsive and corrective waves, reflecting market sentiment and can be analyzed across various timeframes. This theory is based on understanding trader psychology and has a long price history, making it suitable for analysis.

According to the current count, the S&P 500 has undergone an 860-day impulse from $3,491.58 to $6,147.43, a 76.06% price movement. This impulse can be classified as a complete Primary Wave, potentially marking the start of Cycle Wave 3, which could last for several years. However, there are alternative views that consider the all-time high of $6,147.43 as the completion of a bull run that began in 1877.

EWT emphasizes the importance of confluence, where wave counts should adhere to established rules and general ratios or alternation. The current count shows alternation in the Primary Wave 1 (Running Flat) and Wave 3 (Zig Zag), with an obvious Wave 3 Extension. The Primary Wave 5 manifests as an Ending Contracting Diagonal, signaling a loss of momentum and foreshadowing a sell-off.

The correction appears to be a Zig Zag, with Wave A stopping in the Primary Wave 4 price range. wave c is currently in a steep decline, likely in a Sub-Wave 3. If the market reopens with something approximating a Wave 4, the 38.2% Logarithmic Fibonacci Retracement (LFR) at roughly $5,000 could be the end target for the correction. This aligns with the Intermediate Wave 4 terminus in the Primary Wave 3, a common reversal zone.

Given the confluence with standard EWT principles, the correction, though severe, is likely nearing its end. If Wave C worsens and reaches the 2.618 Logarithmic Fibonacci Extension (LFE), closer to $4,300 is warranted. However, the rough target remains $5,000. If the conservative count is incorrect, a more bearish count with significantly lower correction targets may be considered.