S&P: Bearish Scenario: Macro Update Part I

  • CastAwayTrader
  • October 1, 2023
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$SPX #S&P #Macro Update #Elliott Wave

Let’s update our two alternative macro scenarios. We will be looking at S&P 500 cash index.

( I ) The Bearish Macro Scenario:

S&P 500 Weekly chart

Several important things you should take away from this chart:

(i) This scenario is based on assumption that off the Jan’22 top we should get a large corrective (A) down, (B) up, (C) down structure.

The corrective wave (B) topped in July 2023.

Off the July’23 top we should get a strong five wave down move in a wave (C) down.

(2) The key Support and the magnet for the second leg down is the key low made by the wave (B) down that bottomed at 3,209 on Sep 25, 2020.

See the thick blue line that coincides with a negative -123.6% ext of the wave (B) up tha topped in July 2023.

Memorize one very important and unknown rule:

“always consider tops and bottoms of previously completed subwaves “b” as important support and resistance levels“.

Check this out:

S&P 500 Weekly chart

Note how well price normally respects the previous highs and lows made by waves b up and down on any degree (of any size).

(3) S&P has approached the green demand zone.

Even under that Macro Bearish scenario the huge decline in the wave (C) down should start from the first small (a)-(b)-(c) move down off the low that normally is followed by a deep (a)-(b)-(c) up pullback making a lower high.

This is a textbook (i) up, (ii) down setup, a starting point of any large decline.

Big moves down always start from a small a-b-c move followed by a pullback making a lower high.

Price first crawls, then walks and finally runs.

Look how a strong move down started in 2008:

And there is a perfect reason explaining that phenomenon.

Price does not move it is moved. Price is moved by people and more specifically price is moved by people emotions and beliefs. The first a-b-c move down is moved by a small group of aggressive traders. When the first a-b-c move bottoms 90% of traders still believe that the a-b-c move down off the top is just a corrective pullback to be followed by another rally, its just a great long opportunity.

The crowd starts getting doubts about continuation of a rally after the first a-b-c move down is followed by a weak rally that fails to make a higher high. That lower high is what makes first cracks in conviction of the bullish crowd. This is when more traders join the bearish camp. The more traders join the bearish camp the stronger gets the next leg down.

You can read more about dynamics of changing prevailing sentiment of the crowd in my blog post

Let’s come back to the bearish scenario. Let’s zoom in to a 120 min chart of S&P:
S&P 500, 120 min chart

Note two blue lines. They mark the top of the wave -b- up (4,195.44) and the bottom of wave (b) down (3,808.86). Those are the key milestones. They will work simultaneously as targets and strong support levels.

Why? Because tops and bottoms of previously completed waves B or subwave “b” almost always work as important support and resistance levels.

So you can see S&P has not tagged that green demand zone that starts slightly under 4,200.

You can also see that S&P started a corrective wave -iv- up in the second part of the last week that may take a couple of more days before the final wave -v- down towards the green demand zone begins…

Just to remind you that I posted a bullish setup at the close of Friday.

That ES-mini chart shows a potential path for completion of that corrective wave -iv- up early this coming week…

Part II explaining the Bullish Macro scenario will follow next…

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PrevPrevious$ES: Dropped As Expected: Bulls Can Attack 4,400 Resistance Next Week
Next$S&P: Bulls Consider the Pullback off the July High as a Buy Opportunity: Macro Update: Part IINext

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