Into Laszlo’s Trading Room: S&P500 Range and the Long Term Outlook

After the May 27th and June 3rd tests to the all time high the S&P500 index reversed down for a second bear leg in the sequence from the all-time-high top. As we described “bulls had the directional edge…bears the short term timing advantage”.

Analysis details on the S&P500 chart: barely touched the minimum bear targetThe mid-April, early May lows stood out as possible support, but the index barely touched into the 2,067-2,072 zone. Instead, bears who used the May 26 – June 3 tightly congested group of daily bars (left) as a bear continuation pattern scalped out at a price that provided exactly the same amount of reward as their initial risk to the May 27 test high happened to be. To be exact, the reverse Fibonacci scalp measurement pointed at 2,072.36 and the actual low has been carved out as 2,072.21. The fact that the market so lightly reaches minimum corrective targets and is able to overshoot the key resistance level of 2121.91 only a few days later offers a hint that the ranging nature of the market is very much alive.

Although the halt to the bearish price decline at 2.072 is not a full disappointment to the bulls, it is worth taking a look at the larger picture to get a handle on the function of this muddled wave structure that overall moves sideways along a few weak breakouts to new highs. When you see such a rambling pattern on the daily you can switch to lager time frames to find clues about how this fits into the larger degree Elliott Wave cycle.


Based on the monthly chart (below) we are looking ahead to a Primary wave 3 in circle top and the weekly inset explains when and how it might develop. The S&P500 may climb to another marginal all-time-high to complete the Intermediate wave (5) ending diagonal. The move might take as long as 4-5 weeks before the actual reversal happens; and, when I say “marginal,” I mean that on the weekly scale, and I am not suggesting that the S&P500 might exceed 2126 by only a fraction of a point. The new top can be 10+ points higher easily.

Monthly S&P500 chart showing the expected magnitude of a Primary degree correction

Is the coming reversal from the diagonal the point where it is better to batten down the hatches? The picture might be somewhat scary since the market has not experienced such a large degree slide in four years. But, on the other hand, we are talking “only” about a Primary degree wave four correction. It might take as long as a few years to develop but what is more important is the depth it can reach. To demonstrate the proportions of the impending wave four correction, I copied the territory that has been seized by Wave 2 in circle back in 2010-2011. We are expecting a move against the trend that is similar in magnitude. It is almost sure that wave four will not have the same shape (i.e. will not last 17 months and at the same time fluctuate within a 360 point span). According to Elliott’s guideline of alternation the correction will either be more time consuming and shallower like 240 points in 25 months, or sharper such as a 500 point S&P decline in about 13 months, or anything proportional in between. Anyway, due to the large degree cycle top it is a “take profit and buy back later” size pattern, even with a risk tolerant investment approach.

For now, just be patient until there is clear evidence of the bear break form the completed ending diagonal.

The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.

About Laszlo Nagyferenczi

Laszlo Nagyferenczi is a day trader, analyst and instructor as well as the creator of the proprietary Context-Momentum-Signal concept. He has authored over 200 blog articles about his unique approach to trading and the Elliott Wave Theory. His clients appreciate his ability to go from the theoretical to the practical i.e. all the way to the actual trade set ups. Originally hailing from Hungary, Laszlo is fluent in English and Hungarian with a long list of education credentials including BA in Economics, Certified Elliott Wave Analyst (CEWA), Certified Adult Educator for T-Groups, Professional Co-Active Coach (PCC) at CTI. The real education, though, has been the trial by fire in the markets, with real capital at risk.

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