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Thus, we must see five larger waves up from that March 2020 low as the (blue) W-V must subdivide into five (black 1, 2, 3, 4, 5) waves. There have only been three so far, and it’s now a matter of how these five waves progress/subdivide. We start our forecast with the standard Fibonacci-based impulse pattern, which tracked well until the current decline.
However, the bull market from the 2020 low can morph into an ending diagonal. In that case, the (black) 3rd wave comprises three waves: red W-a, -b, and -c. This week’s low is almost a 50% retracement of the October 2022 low to the February 2025 ATH rally: $4,835 vs. $4,819. That is more typical B-wave behavior as 4th waves tend to retrace ~38.2%, which is why we were looking for the $5,116 level. Moreover, the recent 2+ year rally can be counted as three (green) waves. Lastly, B-waves comprise three waves, and thus far, the decline from the ATH into Monday’s low was three (green) waves (a-b-c). Therefore, from October 2022 till now, it has counted well as the red W-a and W-b. See Figure 2.
Although the overall pattern between the standard impulse pattern in Figure 1 and the ending diagonal path in Figure 2 appear similar, note the differences in target zones for the 3rd and 5th waves: $7,121-7,750 vs. $6,738-7,121 and $8,125-8,745 vs. $7,750-8,125; respectively.
We want to conclude like last week: Take a deep breath and zoom out. There are still no signs of a bear market. Even if there is one, history shows us that each Bear market is a Major Buying Opportunity (BIMBO) for those with a time horizon longer than a few days to weeks. Although the standard Fibonacci-based impulse pattern that began in March 2020 is under pressure, an ending diagonal scenario still allows for the SPX to reach ideally $6,738-7,121 before a more extensive correction should start.
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