With no clear directional picture, but greater downside risk, the safe play is to remain out of equities and in bonds, writes Avi Gilburt.

With the S&P 500 unable to break below the important 2720/35 support region, I feel like turning to the market and saying, ala Oliver Hardy, “Well, this is another fine mess you’ve gotten me into.” It has complicated the larger degree structure immensely.

While others may tell you that the market is so simple right now, just buy the dip, I am going to tell you that it is potentially lulling investors into a false sense of security.

Unfortunately, I am also going to tell you that I do not have a specific pattern I can now point with probabilities greater than 70%. Everything I am now tracking is likely below that level of probability. So, as I noted several weeks ago, the market has become much more complex due to its inability to immediately follow through below support at 2720/35.

Some of you may view that as me saying that I am uncertain as to how the market will resolve over the coming week. And, you would be right. There are times the market does not provide a clear picture, and I have to present my analysis in the most truthful way. Yet, I will also note that the majority of patterns still suggest that, while we may see as much as another 100 points higher, the greater risk still remains to the downside.

At this time, it’s best to provide a general road map as to the market potentials. However, right now the downside potential is much greater than the upside potential. While the upside potential may be as much as 100 points higher, the downside potential still remains as much as 700 points lower. The market is going to have to prove to me it has the ability to begin the run to the 3800-4100 region sooner rather than later to suggest abandoning expectations for a larger decline in the coming months.

As long as we remain below 2910 in the S&P 500, we have an immediate bearish set up pointing us down quite substantially. However, should the market be able to breakout above 2911, it opens the door to rally up towards the 2965-2990 region in the coming weeks.

Yet, a rally towards that region would not necessarily suggest we have moved back into a bullish trend. The market can still drop from that higher region. But, should we see the rally towards that upper region, it could mean we spend the next 12-18 months below that region before we see the set up to take us to the 3800-4100 region by 2022/23, likely pushing us towards the end of that time frame to complete this five-wave structure off the 2009 lows.

So, if someone tells you that this market is easy right now, don’t listen. In fact, they were probably among those that did not foresee the 20% decline developing back in the fall of 2018 (while we warned those willing to listen).

For right now, there are four patterns that could take the market much lower and only one pattern that will begin that rally to 3800-4100 sooner rather than later. That is a very small hole for this market to thread a bullish needle.

For now, I am going to keep the cash I raised in the fall of 2018 in the iShares 20+ Year Treasury Bond ETF (TLT) until the market proves to me it has begun its rally to my long-term target of 3800-4100. While this may cause me to miss 3% to 4% of upside, until the market proves to me it wants to take the direct path higher, TLT has already paid me more than several multiples of what my cash would miss from a simple buy-and-hold strategy. And, I intend to stay the course in TLT for now, since I still see higher potential in TLT. A bird in the hand is worth two in the bush.

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.  He recently founded FATRADER.com, a live forum featuring some of the top fundamental analysts online today to showcase research and elevate discussion for traders & investors interested in fundamental rather than technical analysis.