Elliott Wave Analysis suggests that the S&P 500 still is looking for a bearish correction before it can resume a final leg up in its historic bull run, says Avi Gilburt.
Several weeks ago, the market was in a precarious posture, and had an opportunity to drop down to my next lower targets between 2600-2700SPX. But it invalidated the set up to point us down there for now and began pointing back up towards resistance.
As I said in my last article on the SPX several weeks ago:
Over the last week, we were giving the S&P 500 an opportunity to prove that it was either going to provide us with a 1-2 downside structure to start a c-wave, or morph into a b-wave triangle before that c-wave began. However, when the market broke out slightly over 2939SPX on Friday, it signaled that it may not yet be ready to immediately begin that c-wave down.
Elliott Wave analysis does not provide any 100% guarantees. Rather, it provides us with probabilistic expectations based upon the market structure. So, when the SPX dropped from 2100 to 1800 in early 2016, the larger degree pattern context told us to prepare for a major market rally pointing over 2600. And, when the market broke down below 2880 in the fall of 2018, it told us to prepare for a 20% correction.
At this time, the higher probabilistic patterns suggest that the bull market off the 2009 lows has not yet completed. In fact, for those that read my articles closely, you would know that I am still expecting one more multi-year rally in the SPX to the 3800-4100 region before the bull market off the 2009 lows completes.
However, before we begin that last segment of the bull market, I still think the market structure suggests that the higher probability expectation remains for the market to drop down towards the 2600-2700 region over the coming months. And, even with this rally we have experienced taking us back up towards the all-time market highs, I am not yet convinced I need to revise that expectation.
As I concluded in my last article:
Rather than becoming aggressive in either direction, I am going to maintain a bit more patience and allow the market to clarify its intentions over the coming months before I am willing to commit to the next 20%+ move. For now, my expectation remains that we will see much lower levels before the last leg of the bull market begins to take us to the 3800-4100 region.
The question many ask me is, what will it take for me to capitulate and look up towards the 3800-4100 region sooner rather than later?
Based upon my calculations, 3115-3150 is a region of resistance overhead. If the market is able to continue in this current trend to complete 5 waves up towards that resistance region, and it then pulls back from that region, and then rallies up over the top of the initial high for that 5-wave structure, I would likely have to view the bull market rally as resuming and pointing us up towards the 4000 region within the next few years (see chart).
I want to stress again that there are many factors which do not support this more immediate bullish potential. I discussed this in more depth in my weekend report to my subscribers. But the market will have to prove itself to me with that breakout set up for me to switch gears at this time.
The beauty of Elliott Wave analysis (as enhanced by our Fibonacci Pinball methodology) is not just the accuracy of identifying market turning points as well as precise targets. It is not just in its ability to outline where we are in the larger degree structures and provide us with market context which is not available through any other methodology. Rather, one of the main advantages of using our Fibonacci Pinball method is that it provides you with objective indications as to when you need to revise your perspectives.
So, as long as the market does not provide us with the breakout set up noted above, I must maintain an expectation for a return to the 2600-2700 region in the coming months.
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.
