How I know if I am wrong about the equity market
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Several weeks ago, the market was in a precarious posture, and had an opportunity to drop down to my next lower targets between 2600-2700SPX. But, it invalidated the set up to point us down there for now, and began pointing back up towards resistance.
As I said in my last article on the SPX several weeks ago:
Over the last week, we were giving the S&P 500 an opportunity to prove that it was either going to provide us with a 1-2 downside structure to start a c-wave, or morph into a b-wave triangle before that c-wave began. However, when the market broke out slightly over 2939SPX on Friday, it signaled that it may not yet be ready to immediately begin that c-wave down.
For those of you that do not understand Elliott Wave analysis, please allow me to clear something up. As I have said so many times before, I have not found any other analysis methodology which provides an understanding of market context which exceeds that of Elliott Wave analysis. Moreover, Elliott Wave analysis does not provide any 100% guarantees. Rather, it provides us with probabilistic expectations based upon the market structure.
So, when the market dropped from 2100SPX to 1800SPX in early 2016, the larger degree pattern context told us to prepare for a major market rally pointing over 2600SPX. And, when the market broke down below 2880SPX in the fall of 2018, it told us to prepare for a 20% correction.
At this time, the higher probabilistic patterns suggest that the bull market off the 2009 lows has not yet completed, as you have likely read in my articles for many months, if not years. In fact, for those that read my articles closely, you would know that I am still expecting one more multi-year rally to the 3800-4100SPX region before the bull market off the 2009 lows completes.
However, before we begin that last segment of the bull market, I still think the market structure suggests that the higher probability expectation remains for the market to drop down towards the 2600-2700SPX region over the coming months. And, even with this rally we have experienced taking us back up towards the all-time market highs, I am not yet convinced I need to revise that expectation.
As I also concluded in my last article from several weeks ago:
Now, in taking a step back and putting all this action into perspective, I want you to focus upon the attached monthly chart. As you can see, my long-term perspective for many years has been that we can rally up towards as high as the 4100SPX region in the coming years before this bull market off the 2009 lows completes. That still leaves plenty of room on the upside over the coming years, and is approximately 33% higher than where we are now trading. Yet, we also see the potential for the market to decline 20-30% from where we are trading at this time. That basically means we are now stuck in the middle.
So, rather than becoming aggressive in either direction at this time, I am going to maintain a bit more patience and allow the market to clarify its intentions over the coming months before I am willing to commit to the next 20%+ move. For now, my expectation remains that we will see much lower levels before the last leg of the bull market begins to take us to the 3800-4100 region.
So, of course, the question many ask me is, what will it take for me to capitulate and look up towards the 3800-4100SPX region sooner rather than later? My detailed guidance on this question was presented to the members of ElliottWaveTrader in my weekend report. But, allow me to provide you some highlights.
Based upon my calculations, 3115-3150SPX is a region of resistance overhead. If -- again, this is a big “if” right now -- the market is able to continue in this current trend to complete 5 waves up towards that resistance region, and it then pulls back correctively from that region, and then rallies up over the top of the initial high for that 5-wave structure, I would likely have to view the bull market rally as resuming and pointing us up towards the 4000 region within the next few years.
I want to stress again that there are many factors which do not support this more immediate bullish potential. I discussed this in more depth in my weekend report to my subscribers. But, the market will have to prove itself to me with that break out set up for me to switch gears at this time.
You see, the beauty of Elliott Wave analysis (as enhanced by our Fibonacci Pinball methodology) is not just the accuracy of identifying market turning points as well as precise targets. It is not just in its ability to outline where we are in the larger degree structures, and provide us with market context which is not available through any other methodology. Rather, one of the main advantages of using our Fibonacci Pinball method is that it provides you with objective indications as to when you need to revise your perspectives.
So, as long as the market does not provide us with the break out set up noted above, I must maintain an expectation for a return to the 2600-2700SPX region in the coming months.