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US Stocks at Critical Inflection Point: Will Established Trend Persist?

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A look at the long-term bull and bear Elliott Wave counts.

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As most readers know by now, I primarily use Elliott Wave Theory for my market analysis. One of the keys for me is to find waves which triangulate the count to a degree. Certain waves will allow me to rule out some counts, and assign higher probability to other counts via the process of elimination, and from experience. The market hasn't had a triangulation wave at higher degree since all the way back in January. What we've had in recent months is a series of waves which could be interpreted as the market unwinding fourth and fifth waves -- but the pattern could also be interpreted as several other ways.

Let's start with the daily chart of the S&P 500 (INDEXSP:.INX) to illustrate. Going back to red ii, we have a clear windup of first and second waves, which is why I was strongly bullish back in January and February. In May, I published a target of 1680-1690, which the market hit just before reversing strongly. And that's where the pattern started to get a bit "weird" -- not weird in the sense of being unheard of, but weird in the sense of being extremely difficult to predict.

When we look at the chart below, we can see the series of whipsaws bulls have endured, and the series of higher lows that bears have endured. The pattern looks like an ending diagonal, which is a series of overlapping waves which gradually contract -- in classic technical analysis, it's called a "bearish rising wedge." Diagonals are not supposed to be obvious or easy (though they can be), they're supposed to chop everyone to pieces. The biggest challenge is that they're not always bearish patterns. If you look at the pattern starting at blue A/i and ending at red i, you can see a similar-looking structure. In fact, a lot of folks thought that was a bearish ending pattern at the time, but it instead turned out to be a series of first and second waves.
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No positions in stocks mentioned.
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