November 20, 2021: Weekend Analysis of the S&P 500

I have been alarmed by the many risk signals I am seeing. I have been pointing them out (you can review that material here, here and here). So, what do those tell us? I think they are telling us that we are close to a top of great significance. Dealing with $ES has been difficult because it’s not rolling over and if anything, the Nasdaq 100 has gone up with quite some strength. But, let’s not be fooled, breadth is collapsing so using the market cap weight of big tech to prop the indices while everything else is being distributed to a very bullish populace is what I would do at a top, too, I would suppose.

Now, I’ve been groping my way around the toppiness of the S&P 500, and I think I have something interesting for you this weekend. I stepped back and looked very closely at $SPY in particular. My focus during the week has been $ES (in fact, I like to focus on the futures products because, as an Elliottician, I prefer the cleaner wave structures they can often provide us), but I like to back up and look at the cash sessions, too, from time to time, because they augment one’s thinking and I’ve got something good here, I think.

I want to show you just how many triangles can be found on $SPY during the last couple of weeks.

There are so many that I need to break the presentation of them into two charts because they can only all easily be viewed on the 1-minute timeframe.

From 11/5 to 11/15:

SPY

From 11/15 to Friday:

SPY

Holy Mackerel. I’ve shown nine, but there are actually a few more. I’d have to really zoom in to show each and every one, but the ones shown are quite enough to prove my point.

Now, what is that telling us?

  1. It tells us that we are in a correction.
  2. However, we are also trending up.
  3. Therefore, we are only left with one suitable option here: I believe that we are in an ending diagonal now.

It’s among the few ways we can really go up in a market whose primary trend is up, while also being in a “correction”. I put it in scare quotes like that because a diagonal is an impulse wave, but it is the lone exception among impulse waves in that it also happens to be entirely composed of corrections: five three-wave moves joined together.

Now, how does this help us? I think it helps because if this is right, then we should know pretty closely the next few squiggles in the market.

On this analysis, we may conclude the following about the next six swings in the market (red numbers on the chart):

  1. Should be a swift impulse because it is a c wave: minuette (orange)
  2. Should also be a swift impulse wave as it is a c wave as well: of minute (blue) degree
  3. Should then be swift, perhaps like the prior minute (blue) a on the morning of the 18th
  4. May then be another triangle (but may also be any 3-wave move)
  5. Should be swift and may overthrow the wedge, as ending diagonals often do
  6. Real hell on Earth should be unleashed here

At this point, it effectively doesn’t matter right here whether that’s a big primary (pink) 3 or 5 up there, as the initial drop in either case would be loud and clear. I think it’s a 5, given all the evidence I see, but I won’t marry that view if things don’t look suitable as we go.

SPY

Here is a backed out view of what I think I’m seeing:

SPY

We can add this to my view on $RTY, which I shared last night, which indicates that it, too, has effectively been in a “correction,” despite its new high. Now, I went back and updated that post because I want to make clear that the recent highs may not be revisited, which my first chart did not make so clear. If you haven’t read the updated article, I recommend going to look at the amendment I added to that post.


I will add this final note on the S&P: it is unclear how familiar Richard Wyckoff was with Elliott Wave theory, but he saw something quite similar. Notice how we can draw an ending diagonal on his pattern of distribution here, like so:

Wyckoff-ENDING DIAGONAL


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