Elliott Wave Analysis of S&P 500

The current rally in the S&P500 index looks powerful, and this should make people wonder about the medim term outlook for the US stock market. Readers might remember my post of 16 December 2011 where I suggested that we will probably see one strong rally in the index. What is happening now is part of that powerful rally.
The key point to note is we should not see any weakness under 1265 going forward. Any such move will violate one of the main rules of the Elliott Wave Principle, that wave 4 should not trade below the top of wave 1. Suppose the current strength carries the index to 1376, then we will actually move the trigger point higher, from 1265 to the top of Wave A. Let us see how things unfold.

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  1. Hi Ramki,

    I was meaning to ask you this. If you are bullish on XLF and bearish on S&P, the odds that only one of them is going to be right is very high. It seems natural that we cannot have a bearish broader market when financials are rallying. Correct? I’m the reading the XLF move as an extended 1 and followed by normal wave 3 to the 2009 low. So if XLF overlaps to 13.38, it would negate the bullish case on XLF and warn of an impending decline for the S&P too. Don’t you think so?

    Best regards,

    1. Hi BJ, The more I see the delay in XLF moving quickly higher, the more I get discouraged about the prospect for a direct move to 24 area. If we trade below 13.35 now, that itself will be the kind of negation of the bullish prospects outlined in Forbes earlier. So yes, I do agree with most of your comments.

  2. Thanks for the update and yes I do remember your post from 16th Dec. but in that post you also mentioned that “However, just when everyone starts to cheer, I suspect we will get some news that will be interpreted as detrimental to the market sentiment,and the index will come straight down to around 1020.”

    Two questions in that regard –
    1) Do you see now S&P heading upto 1,376 or higher and
    2) do you still think that S&P will turn back down sometime soon or when it reaches 1,376 and towards 1,020 or is that ruled out now?


    1. Hi mike, as of now there is no change in my medium term bearish outlook. But we have to sell only when the time is right, and I will update as we approach such levels.

  3. Dear Ramki,
    Firstly, thank you for a great job of sharing your wisdom and almost responding to nearly all the comments.
    If 1376 is indeed achieved and if it results only in a partial correction(protecting 1265) , is there any wave which could indicate on the Elliot wave study perspective which could take it to new highs towards 1510 ? or it would be known only when the price movements come closer towards 1376 or 1265 ?

    If there is any answer, please respond and if there is not any substance in the query, you can please ignore it.

    1. Hi Pattern Solver, ELliott Wave ANalysis is one of the few techniques that requires a re-look at the markets as moves unfold. That takes care of the dynamic nature of the market. Once 1376 is acheived, we will look at the charts again and decide what to do. I always start with the assumption that just about ANYTHING could happen.

  4. Hello Ramki.

    What do you think about a pair of AUDUSD? Perhaps the price is near of the top. And soon we will see a downtrend. At what level can price start to move down in your opinion?

    Best regards

    1. Hi Alexander, I do agree that in the big picture the AUD will come off, but we will probably continue to edge higher for the time being, perhaps to 1.1040 area at which time please remind me to look up the charts again

  5. hi master
    would you please tell me that which software you use to analyse as these pictures posted in your blog?

    I felt so surprised that you can even got the Shanghai Stock Index at your software which is so hardly found at internet.


    1. Re Software, I use Reuters Eikon, which is an expensive package subscribed by my bank. However, you could do the same analysis with any simple bar chart.

  6. Dear sir
    Can u pls tell me which website you uses for your analysis is it free or paid..
    can we get all time frame chart on it i.e intraday, daily etc.

  7. Hi Ramki,

    I could not understand your comment on trigger point. What is it and why do you move it from 1260 to top of wave A?


    1. HI Shiva, the lower level is the top of wave 1 in a smaller degree, and once 5 waves are completed in the smaller degree, we start should move the trigger higher to the top of wave 1 in the higher degree

  8. Hi Ramki,
    Just wondering since the s&p looks like an ending diagonal could we still have a violation of the top of wave 1 from wave 4 and still go on to a bullish wave five without going down into a c bearish senario correction?
    Love your book!!!

  9. Hi all
    Whichever theories or whatever technical analysis you people follow , keep one thing in mind, since 1945, a positive January in an election year has never missed in predicting a full-year gain for the S & P 500 , posting an average gain of 16 percent.Also 2012 being The Olympics Year , I have observed , every alsternative “Olympics Year” is marked by a Rally or A Correction . You all know what happenned in 2008, so dont expect Huge corrections in 2012.

  10. Thank you very much for sharing your thoughts. What is your long term count on the S&P 500 i..e. 5 year time horizon and at least 10 year history.

      1. I have to say, that’s a very practical approach. Also, while EW patterns hold even in the long run, the targets are less accurate because of fiat currency system. The government can print money as much as they want and inflate financial assets

  11. Hi Ramki,

    Now we have already reached 1377 and saw pullback after that, what is next? are we already at the beginning of wave 5 ? Also, since 3rd was normal, do you think 5th would be extended ? Thx.

  12. hi ramki

    we just had a blowup top last night.
    7.25 years from 2007 top – if indeed it is .. should stretch this rally to 2014.
    also with dodd frank, most of the prop desk have been removed, price discovery and volume is harder. how does it affect EW and GANN theory.

    im also noticing that whenever pretcher comes out with his newsletter and tv appearances. the market rally harder beyond him. his success rate despite the 1987 call is miserable amongst traders.

    best indicator is to trade against pretecher to preserve your cash.

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