STRATEGIES

Traditionally, the stock market sees a pop in the run-up to Christmas. Will the bulls get their Santa Claus rally this year? Jason Haver of Minyanville.com looks at the evidence and shares the likely scenario.

Last update noted that some new intermediate buy signals had triggered and expected that the rally still had/has further to run. Friday appeared to be a triangle consolidation, so there's been no material change, and I still expect higher prices—however, I have spent some ongoing time deciphering long-term charts (somewhere in the neighborhood of 400,000,000 hours during November), and believe I may have finally unlocked the intermediate wave structure.

When the correction first began in September, I was initially viewing it as a fourth wave decline—largely because the structure appeared to need a fourth wave, and most of my indicators suggested that 1,474 was unlikely to mark a major top. But then the decline continued past the fourth wave invalidation level, and that raised questions for the bulls—however, all throughout the decline to 1,343, I continued to feel that the decline was most likely a corrective structure (meaning new highs are/were still out there for this market).

Without further ado, here is the S&P 500 (SPX) chart, which I believe unlocks the intermediate structure. If you're new to Elliott Wave Theory, the most basic concept is that the market moves in five waves when it's headed in the direction of the next larger trend, and in three waves (or combinations thereof) when it's heading against the next larger trend. I believe the rally counts best as five waves, and the decline from September counts best as two three-wave structures. This would mean the long-term trend is still "up."

I've been giving a slight long-term edge to the bulls for a while, and while the market hasn't yet reached the point where we can say the bears are out of the running, unless the market starts declining in a true five-wave impulse, I think we have to give serious consideration to the wave count shown below. Note that the decline found support almost exactly at the 61.8% retrace, which is perfect for a second wave decline. This count suggests the market is on the cusp of a massive rally—a third wave up at minor degree. About mid-way through a third wave, the masses recognize what's happening and jump in—and momentum continues in a relentless fashion.

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Tickers Mentioned: SPX, $BKX