Taking Stock - Tuesday, August 23, 2022 [with updates]

Let's assume that the 6/16 lo in the SP500 index at 3636.87 was the end of a corrective wave from the 1/03 all time high, and that the action since is the beginning of the next impulse wave up to new higher highs.

To confirm this notion will requite identifying a five wave form up from the 6/16 lo. If so, then wave 1 up was a gain of 308.99 points to a local hi at 3945.86 on 6/28. Wave 2 down followed the typical 3 sub-wave down-up-down pattern to a local lo at 3790.38 on 7/14, a retracement of 50.8%.

Then, wave three up terminated at the local hi at 4325.28 on 8/16, and the index is now in wave 4 down.

Retracements are frequently at or near 38.2; 50, or 61.8% of the previous move. The resulting values would be 4120.95; 4057.83; and 3994.71, respectively - indicated with red lines on the chart..

Today's session was almost flat, and the lo at 4129.86 is within 9 points of the 38.2% retracement level.

On the way up in wave 3, the index stalled in a range near 4178 [heavy blue line] a resistance level extending back to March, 2021, when the index was on its way up to the all time hi. Coincidentally, the 144 day exponential moving average [dark purple curve on the graph] is moving through that same range and can contribute to either resistance or support.

On the graph, daily highs are connected with a thin green line, lows in red, and closings in blue. The highs and lows are used In this analysis.

There are three possibilities at this point.

1 - The index is close to completing wave 4 down, and will soon move into wave 5 up, extending beyond the wave 3 hi at 4325.28.

2 - There will be a deeper retracement, probably to another of the typical levels, followed by wave 5 up.

3 - This entire analysis is wrong, and the index will continue to fall below 3636 to new lows.

I think 3 is the least likely, but the picture should clarify over the next several days.

Update - Thursday 8/25

Yesterday's SP500 lo at 4119.97 is within a single point of the .382 retracement level at 4120.85 that I mentioned on Tuesday.

This might just be a coincidence. But if the index climbs from there to close above the 8/16 hi at 4325.28, that will increase confidence that wave 4 is complete, and that wave 5 will continue up to at least 4430 [heavy green line on the chart] and possibly as high as 4650, before the next corrective wave.

Today, it finished at 4200.54, Marginally above the blue line at 4176 - a support/resistance level dating back to April, '21. If it falls back down again, wave 4 is probably still unfolding.

Update Friday 8/26

The market took a hard turn to the downside today.  I mentioned this possibility yesterday, but did not expect it, and certainly not at this magnitude.  The SP500 did a brief zig-zag in the first half hour,  dropped in the next half hour, then slid the rest of the day to finish at the lo.

The lo, 4057.66, is within 34 points of the 50% retracement level at 4023.52.  The chart shows all of wave 3 and the unfolding wave 4

Yesterday, the index peeked above the support/resistance level at 4178, but it could not hold.  This resistance is proving to be more formidable than I thought.

This could still be corrective wave 4, and that will remains my opinion until proven otherwise.  A drop under the 7/17 lo will make this position hard to justify, and a further drop below the 6/16 lo at 3636.87 will negate it completely.

We'll see how it plays out over the next several days.