S&P 500: "Another failure to push through this level now could be catastrophic"

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S&P 500: "Another failure to push through this level now could be catastrophic"
There are many Fibonacci ratios in the market, and all of them help you set price targets

By Vadim Pokhlebkin
Fri, 17 Aug 2012 16:15:00 ET

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Elliott wave analysis is all about form. As Frost and Prechter's Elliott Wave Principle -- Key to Market Behavior puts it,

"...the essential underlying tendency of the Wave Principle is that action in the same direction as the one larger trend develops in five waves, while reaction against the one larger trend develops in three waves, at all degrees of trend."

Above everything else, it's this form of 5-wave impulses and 3-wave corrections that governs the price trends.

Within impulses and corrections, there are rules and guidelines of their own. For example, the length of waves often relates to one another in a Fibonacci proportion; e.g., the minimum expected length of wave 3 is 1.618 of wave 1 (often closer to 2.618).

There are many other Fibonacci ratios, and all of them help you set price targets, a feature that comes in handy when you're trading.

You can learn more about applying Fibonacci to the markets in Lessons 8-10 of our free online Basic Elliott Wave Tutorial. But today, let's turn to an example from our U.S. Intraday Stocks Specialty Service, which puts Fibonacci ratio analysis to work every day when forecasting the S&P 500, DJIA and NASDAQ.

Every trading session, EWI's U.S. Stocks Intraday Specialty Service brings you 20+ forecasts for S&P 500, DJIA and NASDAQ. Details >>

In the intraday update from 9:36 a.m., the Service editor Tom Prindaville wrote (excerpt; bold added):

"8/17/2012 9:36:59 AM ET - As noted yesterday, the five-wave decline from the April peak, combined with the choppy wave action up from the June low, made it rather straightforward that odds where that this move up was only corrective. This meant that it would be unlikely that the [XXXX S&P price point], the very long-term [Fibonacci] 4.236 price projection would be challenged again. That has not been the case.

"What I can tell you at this point is that another failure to push through this level now could be catastrophic for the market. Here’s the simple approach. Above [XXXX] expect the uptrend to continue. To turn away from this level, expect that only a correction has occurred that will allow trade to fall in a protracted manner."

You can find out now what this critical S&P 500 Fibonacci price point is, inside our U.S. Intraday Stocks Specialty Service.

Find out where S&P 500, DJIA and NASDAQ should go in the next few hours

Every day, between 9:30 a.m. and 4 p.m., our U.S. Intraday Stocks Specialty Service brings you 20+ trend updates for the S&P 500, DJIA and NASDAQ.

Learn more about this one-of-a-kind Service -- and meet your hard-working analyst >>

Tags: Dow Jones Industrial Average (DJIA), Elliott Wave trading, Fibonacci, Nasdaq Composite, Robert Prechter, S&P 500, technical analysis, trade targets

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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.