I consider S&P 500 made a major top in January 2022. Specifically, it completed a huge five wave up fractal (repeating pattern) that started in March 2009. You can watch a short video explaining that topping wave count:
The Wave Principle argues that upon completion of a five wave up rally we should expect a large correct (A) down, (B) up, (C) down structure, that erases significant part of the preceding move up. On the chart shown above, you can see that large corrective (A) down, (B) up, (C) down structure highlighted with yellow color.
When the stock market starts a corrective pullback of any degree (meaning that the same applies regardless of a timeframe you watch, from 5 min to monthly charts), the price tends to follow that repeating pattern:
This is why the vast majority of wave analysts follow this fractal and believe that S&P has just started a very strong decline in wave ( iii ) down.
I hate when the market likes one scenario. It creates unstable conditions similar to a case when all the passengers gather at one side of a boat.
I would like to propose a different scenario, painful enough for the majority of market participants.
Under that scenario, S&P and ES-mini have been following a slightly different corrective pattern called the Double Three.
Let’s look at the daily chart of ES-mini below. It shows that very bearish “consensus” scenario:
I have two problems with that widely supported scenario. The problem one is that the A-B-C bounce off the June 2022 low does not look comparable in side to the preceding A-B-C down decline off the top in January 2022. This is why that rally looks rather like a subwave A of wave (B) up (see the alternative way of counting below):
My second argument in favor of that alternative count is that the move down does not look like a five wave down structure but rather follows the Double Three corrective structure labelled as (w) down, (x) up, (y) down.
Under that wave count, this decline off the mid August 2022 high is a corrective pullback that is allowed to make a lower low under the June’22 low (3,655.75) but should be followed by another five wave up rally in subwave C of wave (B) up.
The ideal scenario for bulls would be to quickly recapture the broken support at 3,655.75 and trigger the long “failed breakdown” scenario which is normally followed by a short squeeze rally.
Watch my short video explaining that potential bullish scenario that could bring us unexpected Santa’s rally later this year:
