In the June 3 update, when the S&P 500 Index (SPX) was trading around $7,570, it was shown, using the Elliott wave principle combined with market breadth, that “the weight of evidence indicates a significant decline that may last several months“

Fast forward to today: the index fell to $7,237 on Tuesday and has since risen to $7,456. So far so good. We now expect the next leg to be lower to $6,840-$7,075, depending on the Fibonacci relationship: (gray) c/iii = 1.618xa/i to c/iii = a/i. The index is assumed to remain below $7,598. See Figure 1 below.

Figure 1. Short-Term Elliott Wave Number with Technical Indicators for SP500

With the medium-term picture now in place, I wanted to share how the index has been properly tracked over recent weeks to demonstrate the accuracy and reliability of EWP. In particular, the Wednesday June 3 bulletin predicted that this would be the case

“Tomorrow’s lower minimum will allow us to count five blue waves lower, which will be part of Wa/1. W-2/b should then rebound to the ideal level of $7,595+/-10 before W-3/c hits the $7,490+/-30 target.“

The index opened lower on June 4 at $7,516, rose to $7,598 the same day, and then dropped to $7,368 on June 5. The latter target was slightly below expectations as the index exceeded the more common 161.80% extension for wave 3/C. However, direction is much more important than a small error of 1.2%. So far it’s three for three. See Figure 2 below.

Figure 2. June 3 bulletin forecast compared to actual market performance through June 5

With three lower waves, it was not certain whether a fourth upward wave and a fifth lower wave would develop. Despite everything, “After three waves down, always expect at least three waves up again” The index gave us three waves of growth, with an up day on June 8 and a reversal on June 9, thus ending five (orange) waves lower: see chart 1.

With five (orange) waves lower in the books, our lives have become easier again because we know from EWP to expect a three-wave bounce – gray Wb/ii – and then another leg lower: gray Wc/iii. So in the June 9 bulletin, see Figure 3 below, a multi-day abc corrective rebound was expected with the following precise targets:

→ (Orange) Wa to $7,380-7,430 (reached $7,396 on Wednesday)

→ (Orange) Wb to $7,300 +/-25 (reached $7,257 on Thursday)

→ (Orange) Wc target $7,465-$7,530 ($7,456 reached so far; today’s high)

So far, the textbook three-wave corrective bounce has developed into the zones we have outlined. I’ll repeat: three out of three.

Figure 2. June 9 bulletin forecast compared to actual market performance through June 12

The point is that EWP, when used correctly, allows us to look around several corners at once, providing incredible foresight and a distinct advantage. Furthermore, EWP proves that financial markets exhibit predictable patterns, which allows us to participate in them with greater confidence. While there will always be periods of uncertainty, such as “Will a fourth upward wave and a fifth lower wave develop?”, the question is, once we manage to get five more waves down, the next few moves will be highly predictable with incredible precision.

Of course, there are times when an analyst is wrong, but expecting perfection in an imperfect world is a recipe for (portfolio) disaster. However, you can simply correct the stock by reassessing the price action. When an index follows well-defined EWP patterns, as it does today, subsequent moves from vast to compact are relatively straightforward, providing market participants with an edge and plenty of low-risk/high-reward entry and exit levels, i.e. target zones.