In Elliott Wave terms, the S&P 500 is in wave 3 of 3 down. I will attempt to explain this in terms those not familiar with Elliott Wave can understand.

Wave 3's are long and strong and unrelenting. They can be in either direction. When wave 3 is headed up, everyone is waiting for a pullback. That pullback never occurs.

When wave 3 is down, everyone wants a rally to either get out or get short. Those rallies either occur intra-day, or they don't occur at all.

Wave 3 of 3 is where everything you do is right -- or everything you do is wrong -- depending on whether you're long or short. Playing for countertrend moves is highly unlikely to be a winning move for anyone but the extremely nimble.

With that backdrop, here's a chart of the S&P 500 with the wave 3 of 3 "crash count" highlighted.

S&P 500 Weekly Chart

Click to enlarge

In Elliot Wave theory, "impulsive" waves trace out in patterns of 5 and corrective waves in patterns of 3. Note 5 clearly distinct waves down off the October 2007 high until the March 2008 bottom (the big red 1).

Wave 2 up, a corrective wave (the big red 2) peaked in May. When wave 2 ended, wave 3 began. In theory, wave 3 like wave 1 should subdivide into 5 clearly distinct waves. Indeed that is how it seems to be playing out.

Wave 3 of 3 Down

Wave 1 of 3 ended in July, Wave 2 of 3 ended August, and we are now in the unrelenting 3 of 3 down, where every attempt to play for a bounce has been like "catching knives".

I have a small blue 3 labeled, but that's not final. We don't know where 3 of 3 down finishes. Here are the implications.