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Dr. Arnout Ter Schure
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Almost two weeks ago, see here, I anticipated, based on the Elliott Wave Principle (EWP) and Technical Analysis (TA): “the S&P500 … should now be in (grey) wave-c to end (green) wave-4 at ideally around SPX3770+/-10p. Once this C-wave completes, I expect a strong rally to ideally SPX4185+/-10p for (green) wave-5 of (red) wave-iii … though it can stall at SPX4085

Although the index took a short detour with Monday’s high at SPX3915, it got as low as SPX3723 so far today. That is lower than anticipated, albeit I was still only off by 1%, and it could now be heading for SPX3670 (see my February 16 article here) But, will it go that low, or should one start buying now?

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Monday’s detour shows the market can have many tricks up its sleeve before ultimately doing what it is “supposed to do,” which can cause confusion and uncertainty. Thus we should also apply other objective tools that can give reliable buy and sell signals. If we combine the EWP, TA with such buy/sell signal tools, we have a compelling way to buy and sell at low risk and with high reward. One of these tools I have and share with my premium major market members daily is shown below.

Figure 1. Market Breadth-based Buy/Sell Indicator in Buy zone, but no buy signal yet.

I am waiting for a buy signal.

This Buy/Sell indicator is based on market breadth, and when it drops between 0-5, like now, the market correction is often reaching its end as the index is getting very oversold. But only when it moves back above 5, like in February, March, July, September 2020, and January, February 2021, is the correction is over: green circles. Similarly, when the indicator reaches very overbought readings of >90 and then drops back below 90, we have a reliable sell signal on our hands.

There are a few false signals and occasions when the indicator doesn’t reach 0-5 or >90 before the S&P500 rallies or corrects again, like August and November 2020, but no indicator, tool, and method is flawless. An indicator like this gave a sell signal late-February 2020 before things went severely south in March, avoiding sitting through a 35% crash, and then got you back in late-March for a 15% multi-month rally. It is proof that it can prevent a lot of pain while also providing many occasions with many gains.

For now, the indicator has not given a buy signal yet. It can take a while -like in March or September 2020- but telling us a sustainable bottom in the index is getting much closer than a top. When it does give a buy signal, I expect it (based on the EWP) to be a good one that can last for many weeks and bring the index to as high as the low 4000s, which is my ultimate target for the current Bullrun that started in March last year.

For a look at all of today’s economic events, check out our economic calendar.

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