I anticipated the S&P 500 Index to rise to the 2,875-point region last week, but the benchmark index stalled out at 2,815 before falling and breaking initial support.
Yet, if you remember my analysis even before the S&P 500 SPX, +1.47% bottomed in December, I was expecting this b-wave rally to take us to at least the 2,800 region, and we have thus fulfilled that minimum expectation. And to attempt to trade for further upside is extremely risky.
In the bigger perspective, my primary expectation remains for this 4th wave to still take us down to the 2,200 region. In fact, if the b-wave has indeed topped this past week, then we have an a=c projection right down to 2,200.
But the c-wave down to 2,200 should be an impulsive 5-wave structure. That means we need a smaller-degree 5-wave structure to take us down into the 2,640-2,660 region to complete wave 1 of that c-wave. And if we are not able to complete that 5-wave structure for wave 1 down in the coming week, then the market may still attempt to stretch up into the 2,875 region before this b-wave finally tops out, despite how “ugly” this pattern has become. So the early part of this week is likely going to be somewhat treacherous, based on its open.
Should the market not follow through to the downside Monday, it places the near-term expectations into a bit of limbo. You see, the depth of this pullback is more than I would normally expect in a 4th wave, even within an ending diagonal count to the 2,875 region. But I still cannot rule it out if we are unable to continue to follow through to the downside on Monday morning, despite it breaking initial support. Unfortunately, this is what makes these ending diagonals so treacherous, and why it is so risky to trade for a potential 5th wave higher.
Moreover, and somewhat more importantly, until we actually complete a 5-wave structure off a high, we have no clear indications that the market is setting up to drop to the 2,200 region to complete this larger degree c-wave of wave 4. But, at a minimum, I expect the market to drop back down to the 2,500-2,600 region in the coming weeks, and the manner in which it does will indicate whether we can still attain the ideal target for this 4th wave in the 2,100-2,200 region.
Lastly, I want to remind you again that I do not believe this bull market off the 2009 lows has run its course. Rather, I still think we can see a minimum target of 3,200, with a more ideal target in the 4,000-4,100 region by calendar year 2022-2023. The manner in which waves i and ii of that 5th wave develop will give us a much more accurate target for the top of the market into that time frame.
View additional charts illustrating Avi’s wave counts on the S&P 500 across various timeframes.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live trading room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.