The stock market has been ignoring talk about trade wars having negative implications, and has continued to rally, as many market participants look upon it in disbelief.
While the S&P 500 Index
rose to 2,800 points, as we expected, this past week, I think the market is likely set up for a pullback within the next week or so. But I am still unsure how deep the market can pull back over the next couple of months.
You see, the analysts in our Stock Waves service at ElliottWaveTrader.net are telling me that many of the charts of individual stocks they are following are set up for a melt-up phase in their respective 3rd waves and may not see a bigger pullback this summer. And, since the market is made up of individual stocks, this could be quite telling as to how deep the next pullback takes shape.
As you can see from the attached 60-minute charts, we have had two bullish paths we have been following (while the rest of the market has remained quite bearish on talk of trade wars). The more immediate bullish path in green seems to be what a significant amount of individual stocks may be suggesting. This would mean that we may not break back below 2,700 points before we hit 3,000.
Ultimately, what it likely means is that investors should still be looking to buy the pullbacks in the coming months, and should we see a pullback as deep as the 2,650 region in the SPX, then we can consider ourselves lucky to have such an opportunity to add to the long side.
And, if you remember from past updates, the more immediate bullish pattern (green) has us likely completing this wave (5) of 3 off the 2009 lows as early as the end of 2018, which we may not exceed the 3,000 level by much. It certainly makes the 3,225 ideal target less likely, as we seem to be moving higher as an ending diagonal, which does not reach ideal impulsive targets.
The only caveat I have this week is the same I have presented in the past many times. Should the market be able to push higher in the coming week and top out at 2,823 on the SPX, and then turn down in a clear impulsive 5-wave structure, I would have to give more consideration to the potential that wave (4) has not yet completed in the SPX. This would suggest that while the iShares Russell 2000 Index
would see a deep wave (ii), the SPX may lead to the downside in a c-wave of wave (4). Again, this is a much lower probability at this time, but I just want to keep it on our radar, especially if we top out at exactly 2,823.
Overall, I am still quite bullish on the SPX until we are able to move over the 3,000 mark. And, depending on the path the market takes in the coming weeks, we will have a better idea as to when and where we finally top out in wave 3 off the 2009 low, and usher in a 20%-30% correction in wave 4.
See detailed charts illustrating the wave counts on the S&P 500.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex, and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.