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S&P500 at a Crossroads: Rally Now or Rally Later, but SPX5000 Will Come

By:
Dr. Arnout Ter Schure
Published: Feb 6, 2022, 08:49 GMT+00:00

From an EWP perspective, the SPX can still try for a last stab lower to SPX4150+/-50 to complete a more significant 4th wave, but it will have to drop below SPX4300 to confirm this option, with a severe warning below SPX4400.

S&P500 at a Crossroads: Rally Now or Rally Later, but SPX5000 Will Come

In this article:

The Elliott Wave Principle (EWP) and technical analysis (TA) are powerful ways to analyze what is most likely next for the financial markets. The former provides explicit if/then scenarios, and the latter supports the probability of the possibilities assessment of the EWP options available. Thus, the S&P500 (SPX) is now at a crossroads, explained in more detail using Figure 1 below.

Figure 1. S&P500 daily candlestick charts with detailed EWP count

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Namely, I know the financial markets trend long-term higher in five impulse waves (1, 2, 3, 4, and 5), and waves 1 and 4 are not to overlap in a standard impulse, only in diagonals. Waves 1, 3, 5 move prices higher, and corrective waves 2 and 4 lower prices. Besides, since the March 2020 low, a 3rd wave topped late last year, and thus the 4th wave down must follow, as well as the 5th wave higher. The question now is if this 4th wave has been completed or not?

At this stage, the SPX is at a crossroads from an EWP perspective. Namely, this week’s rally did overlap with wave-1 of wave-c of wave-4 lower (called Bearish cut off in Figure 1A). Thus, this suggests the wave-4 correction is complete, and the 5th wave to SPX5000+ is in the starting gates. The only way for the index to make a low below the January low is to morph into an expanding ending diagonal (EED) wave-c. See figure 1B. EEDs are, however, unusual price patterns. Unfortunately, there are only three waves up off the January low at this stage.

Thus, and as I told my premium major market members on Friday, “if the Bulls can push the SPX above last week’s high from around current levels, then that seals the deal for five waves up as a leading diagonal 1st wave and the larger wave-5 to SPX5000+ is confirmed. But if the Bears can push the SPX below 4400, and especially 4300 from around current levels, then that seals the deal for the expanding ending diagonal wave-c to ideally SPX4100+/-50.”

In addition, TA tells us the MACD is on a buy and pointing higher, whereas money flows back into the index as the MFI14 moves up. Besides, the SPX is back above its 200-day simple moving average (SMA); see the blue line in Figure 1A, which is critical delineation. As such, I am currently 30/70 (Fig. 1A/Fig. 1B) about the market’s true intentions because expanding ending diagonals are -as said- uncommon.

Bottom line: From an EWP perspective, the SPX can still try for a last stab lower to SPX4150+/-50 to complete a more significant 4th wave, but it will have to drop below SPX4300 to confirm this option, with a severe warning below SPX4400. On the other hand, a direct rally over this week’s high will mean five waves up from the January low, and the more significant 5th wave to ideally SPX5500+ is then confirmed.

Since the former option is based on a less common diagonal price pattern, whereas the technical indicators are pointing up and are on a buy, while the index is back above the 200d SMA, odds favor the wave-5 option. However, just because an alternative has low odds doesn’t mean the market will not take it/choose it. As such, by diligently tracking the price action over the next few days, I will keep my premium major market members updated throughout the week on which door, A or B, the market will go.

 

About the Author

Dr. Ter Schure founded Intelligent Investing, LLC where he provides detailed daily updates to individuals and private funds on the US markets, Metals & Miners, USD,and Crypto Currencies

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