S&P 500 Update: Will the FED Crash the Market?
Our preferred assessment of the price action (since the infamous October 2022 low) is that the index completed the (black) major W-3 and W-4 this summer and is now working on the black W-5. The latter appears to form a (contracting) ending diagonal (ED) pattern. EDs comprise a 3-3-3-3-3 pattern and are, therefore, initially indistinguishable from a correction: a 3-3-3 pattern. Thus, it takes time to be confident that the SPX is in an ED.
The index also formed an ED during the February-March rally. See the green box in Figure 1, which illustrates its overlapping abc-abc-abc-abc-abc nature well. We should, therefore, expect something similar over the next few months but on a grander scale, as that was a (green) minor-5 wave, and the current rally should be a two-degree larger Major wave.
With that in mind, we expect the green W-a/1 of the red W-iii/c to be completed soon, and the green W-b/2 to ideally $5525+/25 should be underway from where the green W-3/c to ideally $5950+/-25 can kick in. A break below the (blue) warning level for the Bulls at yesterday’s opening ($5615) will be the first sign that the green W-b/2 is underway, with confirmation below the grey, 2nd warning level, at $5555.
Even a Drop to SPX 5100 Is Still Not the End of the World
The Bulls will be in more trouble on a break below the orange, 3rd warning, level at $5490, as that significantly increases the odds that the market will go below the September 6 low at $5402. Namely, since markets are—as said—complex probabilistic systems, while the EWP is interpretive, we must always be aware that our assessment could be wrong. Thus, the rally from the notorious August 5 low could also be a protracted three-wave rally—a corrective B-wave. See Figure 2 below.