As I outlined in last week’s article, the stock market is likely to take us on a ride for a corrective rally.
And I think we are approaching the completion of the first leg of that corrective rally.
Last week, I outlined my expectations for this past week:
“If my assessment that the a-wave has completed is correct, then we should now be in the c-wave of the [a] wave of the larger b-wave rally. That means that the market should stretch up to at least the 2,600 points [in the S&P 500] region for this c-wave of the [a] wave.”
And, as of Friday, the market has been hitting its head on that 2,600 resistance region.
But the question is if the market is going to top out in this [a] wave at 2,600 on the S&P 500
or if we can push higher toward the 2,640 next level of resistance. You see, the 2,600 region is the a=c target for this rally in the cash index, and that is why it was my primary target for the S&P 500. However, with the futures striking a lower low than the S&P 500, the region upon which we have stalled is the c=.764*a in the futures, with the a=c pointing up toward the 2,640 region for this [a] wave.
Due to the differences in the futures and the cash index, I am unsure as to whether this [a] wave rally has been completed. I will need to see a sustained break down below 2,560/65 to confirm that the [a] has completed at the 2,600 region. Such a breakdown would suggest that the a-wave of the [b] wave pullback I am expecting has begun, which has an ideal target in the 2,500-2,520 region in the S&P 500, as presented on the five-minute chart.
As you can also see from the attached charts, I believe the [b] wave pullback I am expecting will hold over the 2,400 support region. But, should we fail to hold that support, it provides an initial indication the market may drop directly to the 2,200 target we have for this long term 4th wave, as represented by the yellow wave count on the daily chart. For now, my primary expectation is that the 2,400 region will hold as support, and point us up toward the 2,800 region over the coming months.
In the bigger picture, I still believe this 4th wave will likely take us down to the 2,100-2,200 region on the S&P 500 in 2019, but I believe we can rally to at least the 2,800 region before we drop down to that target. But when the market does drop down to the 2,100-2,200 region (even if it occurs sooner than I expect — as presented by the yellow wave count on the daily chart), I view it as a long-term buying opportunity, as I am still expecting a larger degree 5th wave rally to take us to 3,200-plus in the coming years.
View additional charts illustrating Avi’s wave counts on the S&P 500 across various time frames.
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.