Potential EW Count to 1700 and 3 Potential Resulting Scenarios

See my chart below. I tweaked my EW count to support 1867 as the bottom of my ABC count rather than the end of 3ofC. I do not think the price or time retracement from 1867 to 2020 supports a 12345 count very well. Rather, 1867-->2020 makes a good X wave consolidating before the next ABC down. Many people would label this as a WXY double zigzag. Counting larger downtrends in ABCs appears to work best even in bear markets.

Let's assume SPX is heading lower to 1700ish in the coming weeks as I previously proposed for various technical reasons. That means I am looking for an ABC wave Y of ~320 points (2020-->1700).

Let's also assume the character of the market has changed. People were more comfortable buying the dips for years into late August 2015, but sentiment, technicals and fundamentals are turning in coordination more so than at any point since 2009. SPX has not rebounded like it did in October 2014, and the remaining hope for bulls is that SPX will bounce after a slightly lower low like it did in year 2011. Regardless of how you count it, there was a lot of chop and consolidation in 2015 even after the May 20th high. From May 2015, my count shows a leading diagonal triangle A-wave followed by a flat or triangle B-wave followed by a sharp C-wave collapse. Since that rapid C-wave drop, SPX looks like it formed a more traditional ABC zigzag (1867-->1993A-->1903B-->2020C). Volatility also retested the highs of 2010-2011. To me, the C-wave down, the subsequent zigzag, volatility and the Fed/rate culmination are reflected in a technical change in market behavior.

With a new market character, there is a good chance we will see more decisive impulse and zigzag technical behavior for a while. Just as the C-wave took only 1 week versus the 7 week A-wave and 5-week B wave and just as the X-wave only lasted 3+ weeks versus the preceding 14-week ABC, I believe the pace of moves is increasing in line with volatility, risk recognition and a likely bear market. So, triangles are less likely to be seen.

So, assuming a target of SPX 1700 in October with high volatility in between, let's project 3 scenarios using a proportional zigzag, a zigzag with extended C wave and a zigzag with extended A wave.

1. Zigzag with C=A and a Fib 23% retracement
Wave A = 2020-->1840=180pts
Wave B = 1840-->1880=40pts (~23% Fib retracement)
Wave C = 1880-->1700=180pts

2. Zigzag with C=A*1.5 Fib +/- and a Fib 38% retracement
Wave A = 2020-->1870=150pts
Wave B = 1870-->1925=55pts (~38% retracement)
Wave C = 1925-->1700=225pts

3. Zigzag with C=A*.62 Fib and a Fib 38% retracement
Wave A = 2020-->1760=260pts
Wave B = 1760-->1860=100pts (~38% retracement) may be a volatile flat
Wave C = 1860-->1700=160pts

In scenario 1 or 2, SPX should continue lower over the next 2-3 days to ~1840-1870 before bouncing briefly at end/beginning of month. In scenario 3, SPX will form 5 waves for 2020-->1760 in which case today's low (thus far 1909) could be the first of those 5 waves with a wave 3 to begin near the turn of the month.

I give each scenario a 1/3 chance under my bearish count. A rally back above 1929.22 today/tomorrow makes Scenario 3 a little more likely, but Scenario 3 becomes the highly favored scenario if SPX rallies back above 1950 and Scenario 1&2 become slightly favored if 1903 is breached first and heavily favored if 1880 is breached first. So, I am watching 1880/1903 to increasingly favor Scenario 1&2 and 1930/1950 to increasingly favor Scenario 3. Although we all know Congress is likely to resolve its budget showdown next week hours before the deadline, it still looms as one more uncertainty and market negative that should cap rallies until resolved. Good fortune.

 

 

 

*** Update 3PM EST
SPX exceeded 1930, so in EW terms that now tells me that we likely either have (A) a series of nested 1-2-1-2 waves sorta like I depicted on my chart with a question mark or (B) a completed 5 waves down from 2021. They both have their warts and lines in the sand.

Option A supports Scenario 1 with a slightly deeper wave A (and larger wave B) based on wave 3ofA down likely exceeding the length of wave 1ofA from SPX 2021. Option A perhaps supports Scenario 3 even better although I was expecting a more pronounced wave 2 in that scenario. Option B supports Scenario 3 well, although I'm dubious that the market will rally back up near max pain at 1990-2000 by September 30th since Mr. Market has seemingly trapped people above 2040 and more recently 1990. My odds are now Scenario 1=40%, Scenario 2=10%, Scenario 3=50%. A rally above 1950 would eliminate Scenario 1 and 2 and make Scenario 3 or some variation the lead dog. An impulsive move below 1900 would make Scenario 1 the lead dog.

*** Update 410PM EST
After reading Tony's OEW count, I can see an Option C which would be a 5th wave down near 1867 from 2021 making waves 1, 3 and 5 nearly equal in length. This option's wart is that it does not look as good on the Dow. Option C fits Scenario 2 and would fool a ton of people into thinking the worst is over. So, I am moving my Scenario odds back to 1/3 each until I see SPX exceed 1950 or see how it acts below 1900. Sorry for waffling on the odds in the last hour but I reviewed Tony's count and think it has as much merit as my alternatives and fits my scenarios. Of course, Tony thinks that will end Primary wave 4 and avoid a bear market so we differ in what happens next even if Option C occurs.