S&P500 ~ long awaited correction is finally here... Is the coronavirus the black swan event...

Early last year we were giving traders a lot of reasons to consider that the markets were still in a large correction that started from the January 2018 highs. In March last year our charts were labeled to show how a large "expanding triangle" pattern could be the wave formation that the market was working on.

During the Thanksgiving and Christmas Holiday's we pointed out that markets rallied 85% of the time the week prior to each of those holiday's. With favorable economic conditions and the euphoria of the holiday's last year we saw big rallies in the stock market.

The market was able to rally far enough for some of the technical indicators to shift and support a continuation of the rally. This would have meant that the December 2018 low was the end of the big correction and that the next impulse wave much higher was underway.

However, for an impulse rally to be underway the market should have started a five wave pattern from the October 2019 low that carried much higher, most likely, closer to 3700.00 in the SP and above 30,000 in the Dow, Instead prices were only able to form a truncated five wave pattern which raised the warning signs that the larger correction from early 2018 was still working.

The first chart in today's update is the same chart we posted in March 2019 with wave labels added to bring it current.

The "expanding triangle" is labeled on the chart as A down from 2018....B higher to Sept 2018...C down to December 2018 and D higher to the all time high made last week. Notice that each wave moves higher and lower which is why it's referred to as "expanding."

Corrective waves always have relationships with previous waves within the correction. In this case the high for wave D last week was a Fibonacci 1.764 times the wave C. Also, wave C was 1.618 times wave A. This is classic wave action!

The chart also shows the wave labels for wave D breaking down as [a]-[b]-[c] or three waves. Notice that wave [b] also formed a triangle labeled as (a)-(b)-(c)-(d)-(e). This particular triangle is called a "running triangle" because the wave (b) went higher and then the (c)-(d)-and (e) contracted.

The high last week completed a five wave pattern as wave [c] of D and also tagged a perfect target. So, it was no surprise that the market has reversed strongly to the downside.

If this is the correct wave count then what we are doing now is Wave E down to just below the wave C low. This will complete the "expanding triangle" "intermediate" wave (4) from the wave (3) high made in January 2018.

One thing traders should be aware of is how the wave pattern finished to the upside just prior to the coronavirus epidemic. The market had already topped and only needed a catalyst to use for the reason to start the sell-off.

This chart of the Dow index shows the same large triangle from January 2018. Notice that wave D last week hit the important Fibonacci number where D was 1.618 times wave C.

When an A-B_C correction is complete price will always head back to the wave B high or low price. Today's low in the Dow tagged the wave (a) of [b] low and the SP tagged the wave (e) of [b] low.

Markets will always use whatever reason they have to move back to these areas and always much faster. Notice...it took over two months for wave [b] of D to complete and as of today the market gave it all back in only seven trading days.

This 100 minute chart shows how the decline this week is tracing out 5 waves. This morning price made a low and from there we are seeing the largest rally so far. We've labeled this 5 wave decline as "minute" wave [i] or [a] but, price needs to move above 3050.00 to confirm a short term low. Under normal price movement if today is the end of the selling we should see a corrective rally next week at least back up to the wave (iv) around 3185.00.

Now, lets get really technical! This chart is labeled slightly different but, still has pretty much the same outcome short and long term.

It is possible that the market is tracing out an Elliott "running or expanding flat." All this means is that we will see an A-B-C instead of the triangle.

This is why the short term chart is labeled with a [i] or [a]. If price is tracing out the triangle...then the current decline is wave [a] of wave E. This is because each primary wave within the triangle is composed of three waves. So, price has to decline in an [a]- [b]- [c] to complete E of (4).

Under the rules for the flat pattern...the wave C down of (4) would have to form 5 waves. This would mean that this first move down from the high is only wave [i].

This will be easy to monitor in the days ahead and we will know well ahead of the completion of wave (4) which pattern is forming.

This chart is for traders wanting to see the labels showing all the sub-waves down to the smallest "micro" degree (red).

This chart going back to the March 2000 top shows the Elliott Wave in all of it's glory. The high in 2000 completed a "primary" degree wave [3] that was followed by an (A)-(B)-(C) into the 2009 low.

This primary degree five waves goes all the way back to the 1974 low. The five wave rally that began from that low is in it's final stages now as it sub-divides it's way to complete the "primary" degree wave [5].

Notice also, the chart shows that this primary five waves is also completing the "cycle" degree ( pink V) five waves that started from the 1932 stock market low during the Great Depression.

Further, the five "cycle" waves, that are sub-divided by the five "primary' waves are also completing the "super cycle" degree (blue) wave (iii).

When the media reported this week that all kinds of stock market records were being made...biggest one day loss in history...biggest two day loss in history...biggest decline in the shortest amount of time. The wave count that the markets are currently in have also never been seen before which is the real reason we are experiencing records. The "super cycle" degree has been going on for 88 years and next year will be a Fibonacci 89 years....making a perfect time for the final highs before the start of a bear market unlike anything we have seen!!!

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