S&P 500 Can Still Target 4800


Already in early August, see here, we warned that per the Elliott Wave Principle (EWP) a major top could be forming for the . We followed up on our forecast regularly, with the market throwing the obligatory and occasional curve ball. But by the end of October, the index had lost 11%. Three weeks ago, see here, we found a reversal was likely and:

“The Bulls have one last chance to reach $4800, as long as $4100 is not breached. A corrective pullback in the EWP analysis always takes shape as an a-b-c structure, wherein the W-a comprises three or five waves, whereas the c-wave encompasses primarily five waves. Therefore, because the initial decline from the July $4607 high into the August $4335 low counts best as three waves, it suggests this is an a-b-c corrective pullback. It sets the index up for a rally to ideally $4800 when the pullback completes. However, only one (!) type of pattern can start as a three-wave move and will still complete a full five waves: the “dreaded” diagonal.

Fast forward, and the index bottomed at $4103 on October 27 and staged a strong enough rally to produce a Zweig Breadth Thrust. Thus, so far, the Bulls stick saved it by three (4100 vs 4103) But is it enough? Allow me to explain using Figures 1 and 2 below.

Figure 1. Daily SPX chart with detailed EWP count and technical indicatorsThe first option, Figure 1, tells us the index bottomed for red W-iv in October and is in a new impulse move (green Wave 1, 2, 3, 4, and 5) higher to the $4800 level: red W-v. Based on the short-term EWP count (See Figure 3), we anticipated green W-1 to wrap up shortly, after which a brief, multi-day pullback, green W-2 to ideally $4240+/-20 will kick in. From there, the index can launch in green W-3 to ideally the $4550ish.

The second option, Figure 2, follows a similar path, but the leading diagonal (black W-1) bottomed out in October, and a counter-trend rally (black W-2) is now underway. As we learned, counter-trend moves, aka corrections, comprise three waves, and in this case, based on the short-term EWP count (See Figure 3), we anticipated the five-wave red W-a to wrap up shortly after which a brief, multi-day pullback, red W-b to ideally $4240+/-20 will kick in. From there, the index can launch in red W-c to ideally the $4560 to close the August 2n gap down open, where c=a.

Figure 2. Daily SPX chart with detailed EWP count and technical indicatorsSPX-Daily ChartHence, in the intermediate term (over the next few weeks), both options allow for the same path forward, but once the $4550/60 level is reached, the market can decide to take path 1 or 2. We don’t know yet. From a risk/reward perspective, please note that path 1 will lead to marginally higher prices ($4800), with the potential of $5000 (+5 to 10%) from where the next significant pullback can be expected. In contrast, path 2 says the subsequent considerable decline (-50%) will start there.

Figure 3. Hourly SPX chart with detailed EWP count and technical indicatorsSPX-Daily Chart



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *