Potential Downside Target on SPX: 3498
Aggiornato
Quite a few traders, technical analysts and investment strategists confidently called the 5/20/22 low as the level where the market bottomed a few weeks ago. But many also raised the real possibility that more downside exists especially given persistently high inflation, hawkish FOMC policy, and recession fears.
After the major downside breakout of the recent consolidation in
SPX and 
NDX and other major US indices, examining a potential downside price target seems prudent.
SPX Price Target = 3498 (assuming 5/20 lows are broken in the coming days / weeks)
This SPX price target depends on the 5/20 SPX low of 3810 being broken in the coming days / weeks. If the 5/20/22 low is not broken, then this price target is no longer valid.
This price target also assumes (perhaps incorrectly) that the present correction is either a 5-wave move (larger degree of trend) or some sort of double or triple correction from an Elliott Wave perspective. This assumption may be incorrect, especially if the 5/20 low at 3810 SPX is not broken.
But if the 5/20 low is broken to the downside, a likely target would be 1.618 times the first leg of the decline (1/4/22 to 1/24/22) projected from the 3/29 high near 4637 SPX. This projection reaches 3498 on the S&P 500. Interestingly, the 200-day SMA currently lies at 3498 as well.
When looking back to the pre-Covid crash peaks in early 2020, and significant peaks in August 2021, these also are near this 3498 target: the major support area ranges from approximately 3350 to 3550 on SPX.
Lately, I've seen several Elliott Wave experts provide wave counts under Elliott Wave theory for the present correction / bear market. Given that Elliott Wave experts can reach such dramatically different conclusions causes me to question the utility of spending hours doing wave-counting analysis—if the hours spent have a lower chance of yielding accuracy, then the endeavor is inefficient. This is not to question EW's value. EW still can provide a number of reasonable price paths. And when the price path is less clear (complex corrective patterns), it can suggest preserving capital rather than trading or investing aggressively.
After the major downside breakout of the recent consolidation in
SPX and NDX and other major US indices, examining a potential downside price target seems prudent.SPX Price Target = 3498 (assuming 5/20 lows are broken in the coming days / weeks)
This SPX price target depends on the 5/20 SPX low of 3810 being broken in the coming days / weeks. If the 5/20/22 low is not broken, then this price target is no longer valid.
This price target also assumes (perhaps incorrectly) that the present correction is either a 5-wave move (larger degree of trend) or some sort of double or triple correction from an Elliott Wave perspective. This assumption may be incorrect, especially if the 5/20 low at 3810 SPX is not broken.
But if the 5/20 low is broken to the downside, a likely target would be 1.618 times the first leg of the decline (1/4/22 to 1/24/22) projected from the 3/29 high near 4637 SPX. This projection reaches 3498 on the S&P 500. Interestingly, the 200-day SMA currently lies at 3498 as well.
When looking back to the pre-Covid crash peaks in early 2020, and significant peaks in August 2021, these also are near this 3498 target: the major support area ranges from approximately 3350 to 3550 on SPX.
Lately, I've seen several Elliott Wave experts provide wave counts under Elliott Wave theory for the present correction / bear market. Given that Elliott Wave experts can reach such dramatically different conclusions causes me to question the utility of spending hours doing wave-counting analysis—if the hours spent have a lower chance of yielding accuracy, then the endeavor is inefficient. This is not to question EW's value. EW still can provide a number of reasonable price paths. And when the price path is less clear (complex corrective patterns), it can suggest preserving capital rather than trading or investing aggressively.
Nota
The S&P 500 also failed this week at the 8 EMA on the weekly chart, as well as all the key moving averages (8 EMA, 21 EMA, 34 EMA) on the daily chart. Price also failed at key Fibonacci retracement levels including: 4223.81 = .50 Retracement of 3/29-5/29 decline (price never even reached this level though it came close)
4198.70 = .236 Retracement of entire 2020-2022 rally (price never reached this level though it came close, touching 4177)
4195.49 = .382 Retracement of 1/4 - 5/20 decline (entire correction)
4185.45 = 1.618 x wave A of expanded-flat starting on 5/12 and projected from the beginning of a purported wave C at the low on 5/20
4126.23 = .382 Retracement of 3/29 - 5/20 decline
4112.57 = 34 EMA / D
4094.34 = 8 EMA / W
4073.37 = 21 EMA / D
4049.37 = 8 EMA / D
3981.88 = end of "wave A" / wave 1 off lows now broken
Nota
Lastly, weekly RSI is turning back down after failing at its 13 EMA and also failing to reach 50. This suggests more downside as well. for those who use RSI to complement their analyses.Nota
/ES futures just sliced through a key support level at 3807, the prior lows from 5/20. From an EW structural standpoint and from a support / resistance analysis, this strengthens the bearish case significantly. Though a bounce could occur into FOMC or OPEX, at this point, the next few weeks look as though the path of least resistance is very much downward.Nota
Fed fund rate futures contracts are a good way to determine what markets expect the Fed to do based on all the available data. Over the last several days, Fed Fund futures markets have shifted drastically. On June 10, 2022, they showed a 76% probability of a 50 basis point (bps) hike. But today, June 13, 2022, one trading day later, the Fed funds futures show a 96.9% probability of a (surprise) 75 bps hike, a larger than expected move given that Chair Powell at the last FOMC presser stated that 75 bps hikes were definitely not being considered or discussed (though he stopped short of saying 75 bps hikes were off the table).The volatility surrounding the FOMC will be quite intense, especially considering OPEX on Friday, June 17 as well. Given the hot inflation reading, and the P.A. over the last 3 trading days, bounces in the next couple weeks will likely be sold, and the target of 3498 (or lower) is becoming more likely.
Nota
Next week could be interesting. After getting through this past week, which had wild price swings due to FOMC's 75bps rate hike and signal for additional rate hikes, as well as monthly and quarterly OPEX, SPX price ended just below 3700. Progress has been made toward the 3498 target outlined above.I applied a Fibonacci price channel on a daily chart. It shows the levels that may be important going into next week. See the teal circles, which indicate overhead resistance and downside support.
Markets could follow crypto to the downside. Crypto having sold off hard this weekend, may be a harbinger of market action on Tuesday, June 21.
On the other hand, markets are quite extended to the downside, and a relief rally could be in the cards before further downside.
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