Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.
Elliott Wave counts are meant to provide context. Each colored count represents the most probable paths given the current price data. There is a pattern unfolding in real-time, one of which will play out. By monitoring price levels that are held/broken, it will help us figure out which one is in play, so that we can better manage risk.
Broad Market Analysis
The Larger Trend (S&P 500)
Holding the 4163 SPX level would be the deciding line between how we approach risk for the rest of the year. My primary view was that the S&P 500 (SPX) would see one more swing higher into early 2024 as long as we held this region. We have broken this level since and found a low, so far, at the 4103 SPX level. This move has altered how I view this market, and also how we plan to manage our portfolio.
Because of this, I am maintaining the two general counts; however, I am shifting my primary count to the Red count, and having the Green count as an alternative.
Red – The bear market that started in January of 2022 is still playing out. In Elliott Wave speak, 2022 was the A wave, 2023 was the B wave, and we are starting the final leg of this secular bear market, called the C wave. In other words, 2023 was a cyclical bull market within a secular bear market.
C waves are relatively easy to track because they are always 5 wave patterns. Unlike a 3 wave pattern, they tend to follow set parameters, have little room for alternative interpretations and allow for precise targets. This is the good news. The bad news is that the C wave is the most dramatic and emotional part of a correction.
If this is playing out, then we are completing the 1st wave that makes up the larger C wave. What follows the 1st wave is the 2nd wave bounce, which I believe we are in. The 3rd wave drop is where the bulk of the destruction will happen. The fact that the drop off the July top is a 5 wave pattern, this potential is present and risk remains elevated.
I do not see a recession developing in Q3, and still do not today, based on the data. So, any top would mean an “event” would likely pull forward a recession, and therefore a market top. Since then, we have had another international event occur, which the market has used to push below our 4163 critical support, forcing us to alter our primary count.
Green – This is now my alternative scenario. It is still possible, especially after so many FAANGs reported favorable earnings. However, the only difference between the Red and Green count is how high this final bounce will go – the Green targets are anywhere between 300 – 600 SPX points above the Red targets.
While I do think the odds of SPX reaching a new high has diminished due to the depth of this correction, I do believe the NASDAQ-100 and a handful of FAANGs will still see higher highs, while most stocks and indexes see lower highs.
2023 Uptrend and Top
If we zoom in on the structure of the 2023 cyclical bull market, there are a few visuals worth noting. For one, the depth of this drop has clearly broken through the trend channel that has held this move in place.
Fourth waves can, and sometimes do, break through the trend channel, but they need to reverse back into the channel quickly, which we have just seen. If this is a 4th wave, and it did temporarily break the trend channel, expect the 5th wave to be fast and nearly vertical. The next pullback will tell us more.
Secondly, note the structure of the drop from the July high. It is clearly 5 waves, which has decreased the probabilities in the Green count and increased the probabilities of the Red count. The reason for this is because it builds the case for the C-wave. These patterns are fractal, so a smaller 5 wave pattern builds into the larger. We now have what can be counted as a smaller 5 wave pattern in place, which is concerning.
The Last Bounce
The above image sums up where I think the next move will take us. My primary count is Red, which means we will see another drop then push higher into the 4400 SPX region. If this count is in play, the next drop should hold the below red trend line, or even a little lower towards 4238 SPX, at most. This would be the retest of the trend channel breakout.
If we instead break below it, the odds will increase that the correction that started in July is not over. This is marked in Blue and has us making one more drop towards the 4000 SPX region before completing the larger 1st wave pointing down. If this plays out, the Green count will get removed from the board.
If we are in the Green count, we will not know until we break above 4490 SPX.
In conclusion, I only see one more bounce in the S&P 500. Whether that bounce takes us to the 4400 SPX region or towards the 4700 – 5000 SPX region, will not change the likely outcome – any bounce we see will likely get retraced plus all of the 2023 cyclical bull market in 2024. Each investor will need to determine their own risk tolerance, time horizon, and ability to be nimble if they want to play this developing bounce.
Positions Report of Nvidia, Microsoft, and Netflix
Nvidia (NVDA)
NVDA appears to be one of the stronger FAANGs, like AMZN, META, MSFT above – it appears to be working through an incomplete uptrend, suggesting a 5th wave higher is needed. What is concerning is that the red count provides that 5th wave higher, which suggests a bigger top is already in. This would support some of the institutional activity in the $440 region, which suggests selling.
As usual, the upcoming earnings report will be paramount to deterring what count is in place for NVDA, and the larger market. As long any further weakness holds $380, the green count is still active. Any move below $340 will fully confirm the top is in.
Microsoft (MSFT)
MSFT is very close to the upper targets we laid out weeks ago. At $378 and we should see a pullback. If that pullback is a 5-wave drop, it will signal a larger top is developing. However, it still needs a higher high to complete that 5th wave. Until we get that, this could play out in many ways. Any imminent drop below $324 will be concerning. Below $307 and the top is in.
Netflix (NFLX)
I’m still considering the July high as a bigger top. This doesn’t mean we can retest that level and even push slightly higher in the coming weeks/months. This would be my Green count below. Note how the drop from the July peak was a 3 wave pattern, followed by what looks like another 3 wave bounce. This lines up with the big picture that we are tracking, which is that NFLX is in a large degree 2nd wave retrace. If the next drop is a 5 wave move, it will line up with this thesis. If instead we get a 3 wave retrace, it will support the Green count. So, the next decline in NFLX will be very telling.
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