This analysis covers the markets as they stand as of the close of US-based trading on Thursday, August 24, 2023. Data are current as of that time. “Today” is relative to that date. This is despite this article being published on Friday, August 25 in the Central, Eastern, or GMT time zones. However, it is being published on August 24 in the Mountain or Pacific time zones. And on Friday, the Mountain time zone (which includes Wyoming) may well be the time zone that matters.

Overall, today was a solid down day. The DJIA, S&P 500, S&P 100, Nasdaq Composite, Nasdaq 100, and Russell 2000 were all down over 1%. This is measured from the opening of trading today. The decline would be even more significant if it were measured from the spike high at the beginning of the trading day. On the NYSE, 76% of stocks were down, as opposed to only 23% that were up.

The $VIX had a similar pattern, but in reverse. It formed a spike low at the beginning of the trading day and closed the day up by over 7%.

The percentage of stocks that are above their 200 day moving average (MA) continues to drop. As of today’s close, it is 50.24% for the NYSE overall and 50.40% for the S&P 500. (As of the close on August 17, these percentages were 51.05% for the NYSE overall and 53.60% for the S&P 500, respectively.) Meanwhile, the S&P 500 closed today at 4376.31, and its 200 day MA closed at 4142.12. Thus, the S&P 500 is only 5.65% above its 200 day MA. Thus, since this time last week, the index is only slightly closer to its 200 day MA. But these percentages have worsened to a greater degree than the underlying index. This is a sign of internal deterioration in the market.

A similar observation applies to the 50 day MA for $SPX. It is at 4458.90, so $SPX is only below its 50 day MA by 1.85%. This margin is almost the same as last time. However, the percentage of individual shares below their 50 day MA deteriorated to 31.20% (vs. 34.40% as of the close on August 17).

Despite the strength of today’s decline, there were still a meaningful number of new highs today. On the NYSE, there were 27 new highs and 46 new lows. On the S&P 500, there were 9 new highs and 12 new lows. In both cases, there were more than half as many new highs as new lows. This is a sign of a market that still hasn’t made up its mind about which way to go.

The NYSE Up Volume-Down Volume line fell to negative 6963.52 today. This is not far above its low of negative 7717.18 on March 17, 2023, its lowest level in two years. Of course, that time period includes the entire move from the all-time peaks in the major indices in November 2021 and January 2022.

Furthermore, it is interesting that the two-year low is at that time, rather than in October 2022, the month when the major indices found a temporary bottom. In that month, $NYUD bottomed at negative 7322.07 on October 14. This suggests that for the last few months, volume has been weaker than is obvious from the underlying index values.

Yesterday, the put:call ratio spiked again, to 1.18. This is a significant jump from 0.91 on Monday, August 21. However, it is still below the 1.26 level from August 16.

A survey from the American Association of Individual Investors (AAII) found that as of August 21, 32.3% of respondents were bullish and 35.9% were bearish. Thus, there are now more bears than bulls, with a margin of 3.6%. This is the first time since May that this survey found there to be more bears than bulls. Could this be a sign that the retail investor is starting to realize there are fundamental problems with the economy and the financial markets?

In the S&P 500, the advance from 4335.31 (early on August 18) to 4458.30 (early today) does not count well as an impulse. It counts well as a double zigzag, which is a corrective move. However, it also counts well as a leading diagonal.

This move is followed by the sharp decline today. So far, this is a clear three waves. We are currently in the third wave, which is not yet as long as the first wave. Until this is countable as a clear five waves, there is a significant risk that this move is one of the following:

• A B wave of a single zigzag, wherein the A wave is a leading diagonal as discussed above.
• An X wave of a complex correction. This move is sharp and swift, relative to the corrective advancing move before it. That is typical of X waves within complex corrective waves.

In either case, this move would be followed by another advancing wave to complete the overall correction.

It is interesting that today’s high of 4458.30 does not overlap the likely first wave ending at 4461.33 (on August 9), as discussed for the report for Thursday, August 17, 2023. Thus, the peak at 4458.30 could potentially end a fourth wave correction of the entire decline from the recovery high at 4607.07 (on July 27).

Another possibility is even darker. The decline from 4527.37 (early on August 10) to 4335.31 counts best as three waves. For it to be five waves, there would need to be an upward corrective wave that is small relative to the upward corrective wave from 4443.98 (early on August 11) to 4489.99 (late on August 14). This is allowed, but it has a lower probability.

However, the advance from 4335.31 to 4458.30 overlaps the decline from 4527.37 to 4443.98. Therefore, this advance cannot be a fourth wave of an impulsive decline from 4527.37. Thus, there is a high risk that this advance is actually a second wave of a decline from 4489.99. If we update the wave count in the $SPX from the report for Thursday, August 17, 2023 based on this possibility, we get:

• Origin of the move: The peak at 4607.07 (early on July 27).
• Wave 1: The leading diagonal down to 4461.33 (on August 9).
• Wave 2: The clear three waves up to 4527.37 (early on August 10).
• Wave 1 of 3: The decline to 4443.98 (early on August 11).
• Wave 2 of 3: The advance to 4489.99 (late on August 14).
• Wave 1 of 3 of 3: The decline to 4335.31 (early on August 18).
• Wave 2 of 3 of 3: The advance to 4458.30 (early today).
• Wave 3 of 3 of 3: The ongoing decline.

As in the report for August 17, this wave count is not asserting any particular wave degree.

The third wave is often the strongest wave of an impulse. This is especially true for waves that are third waves at multiple degrees of trend. Thus, a wave 3 of 3 of 3 is likely to be very strong.

It is interesting that wave 2 of 3 of 3 is larger than wave 2 of 3. It is allowed, but atypical, for the smaller degree wave to move farther than the corresponding larger degree wave. However, this is consistent with the possibility that wave 3 of 3 will be massive, relative to wave 1 of 3. In other words, this is consistent with the possibility of a sharp decline.

Another risk factor is Fed Chairman Powell speaking in Jackson Hole, Wyoming tomorrow morning. This speech is likely to trigger volatility.

However, as noted above, there is also a wave count wherein the next move is a milder decline, and another wave count wherein the next move is actually an advance. Thus, as usual for Elliott Wave analysis, we don’t have exact certainty of the next move. However, we can make an educated guess at which outcomes have a higher probability. We can also consider the potential impacts of each outcome.

It is emphasized that even the darker scenario above is not intended as a crash call on the scale of 1929, 1987, or even 2020. The strength of the third wave at multiple degrees of trend would be relative to the preceding sequence of first and second waves. More generally, it would be stronger than the quiet market over the last several months. But that’s not saying much.

If we look at the big picture in the S&P 500:

• The move from the all-time high at 4818.62 in January 2022, to the recent low at 3491.58 in October 2022, can be counted as wave 1. This move appears to be an expanding diagonal.
• The advance to 4607.07, on July 27, 2023, can be counted as wave 2.
• The subsequent decline is part of wave 3.

In an impulse, the third wave will continue past the end of the first wave. Typically, it does so by quite a bit. Therefore, if this big picture wave count is correct, wave 3 therein is nowhere near its terminus. This increases the probability that the detailed count outlined above is actually occurring as part of wave 1 of 3 of the big picture count. If there is a decline in the near future that is of similar magnitude to the sharp declines in 1929 and 1987, it is more likely to happen as part of wave 3 of 3 of the big picture count.

I’ll say this last, because it is critically important in my opinion. It is important to consider risk versus reward, including the relative probability of each outcome. A primary consideration is avoiding bad outcomes that have a high probability.