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The Sails Have Been Hoisted To S&P 500 3380 (NYSEARCA:SPY)

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Extreme close up of thrashing emerald ocean waves

lindsay_imagery/E+ via Getty Images

While enjoying lunch after a day sailing the Mediterranean at the tail end of last season, the captain enthusiastically reached for his phone to show me something. He said “This guy who was on a sailing course with me last week has made money on crypto – he said this one is going to go up, so I put some money in and I’m up 500 euros.” I replied, “Sounds good, may I have a look?” “No problem,” he said, handing me the phone.

While scrolling around the screen looking for a bar chart to see if I could give him any pointers as to where the price may be headed, I noticed there were none. A simple line chart was all that was on offer, and I was bemused that somebody with absolutely zero experience could be “investing” in crypto that a “a guy” had recommended. That, coupled with extremely primitive technical information available on the app, left me wondering if cases like this were snowballing.

It was with that thought that I decided to create what I call the Ward Three Wave Theory. It states that in order for a financial market to move significantly higher or lower, it must make waves. Waves are essentially a mismatch between buyers and sellers. By understanding the mechanics of this, coupled with the understanding of time frames, it’s possible to provide educational bearings for aspiring traders or passive investors with zero prior knowledge.

Identifying the mismatched picture that is painted by waves one and two can lead to both a probable direction of a wave three, as well as a target that one can identify from the preceding waves. I want to offer an example that this theory has technically predicted for a current structure in the monthly time frame for the S&P 500 (NYSEARCA:SPY).

Three Wave Structure For The S&P 500:


Created by author using data from cTrader

The Ward Three Wave Theory looks to identify a target on a high (or macro) time frame, with arguments about the highest level of probability that a market will go from one exact price point to another. While there are other theories that look to carry out the same function, they might outline several possibilities.

The SPY bottomed in its current structure in late February 2020 at 2184. It has since then ground higher to its eventuality in this pattern, at 4820 in October 2021. The market seemed to be on an “armchair ride,” succumbing to shallow pullbacks along the way with the term “lazy river” coming to mind. January saw a healthy retrace from 4820 to 4105, with February showing a nice bounce to 4639. Nothing to see here.

And just like that, a wave one, two, and three structure appeared with the SPY’s sudden decent and complex piercing of 4105. The only difference in this three-wave structure is that it was not in the direction this market has become accustomed to.

With this latest technical lower low confirming a wave three downward, we will now look at where the argument lies in predicting the probabilities of it landing on the doorstep of 3380. The Ward Three Wave Theory puts its case forward that if a wave one continues from one price point to another without significant obstruction, confirmed by a rejection wave two that lies within and doesn’t exceed the low of wave one, that this is our first printout of any certainty or association with the word “exact.”

Because we have a numerical printout of wave one and also the correct parameters of wave two, we’re now looking for the next technical confirmation. This is the “higher high or lower low” that confirms a march to a new battle ground. And that is exactly what we can see here: a wave one bearing 4820 to 4105, a wave two bearing 4105 to 4639, and the confirmation of a third wave with the piercing of 4105 – the “lower low.” The Ward Three Wave Theory then looks for the third wave to exactly numerically copy wave one before it makes its decision to continue (in this case) south or possibly turn around. And this is what humans and markets like, isn’t it? As near to exact as possible.

A wave three is always open to a fail by making a higher high or lower low and then exceeding the high or low point of wave one before it numerically copies wave three. In this case, a move above 4820 before hitting the wave target of 3380 would render the move a fail and technically start a different wave setup.

If the technicalities in this setup play out that wave three copies wave one, SPY will land at 3380 – possibly within the next 90 days. The market is still hovering around the broken support area at the time of writing, giving ample opportunity join this third wave. Given the wave structure outlined, a strong sell of SPY from 4104 to its wave three target of 3380 is in play.

Read More: The Sails Have Been Hoisted To S&P 500 3380 (NYSEARCA:SPY)

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