S&P500 update: how did we do, and what’s next?

Since “the proof is in the pudding”, and “past performance is [in this case] a guarantee of future results”, and “you are only as good as your last trade” 🙂 let’s first take a look at how well we did in predicting the recent market decline before forecasting what’s next.

The chart below shows our forecast for our premium members made on March 16, showing the market would ideally decline to SPX2340-2320. Fast forward, and last Monday, March 24 the market bottomed at SPX2322, after which it staged the best rally since the SPX2401 high.

With that performance in the books, we can now look at what’s ahead. The hourly chart below shows two possible ways to count the current advance off the SPX2322 low. Our prefered count can only count 3 waves up so far, with the 3rd wave underway: SPX2322->2364, 2364->2353, 2353->XXXX

spx hourly 1b

However, since it’s a bull until proven otherwise, we always carefully analyze the 1- to 5 minute charts for possible impulse patterns up AND that follow ideal Fib-extensions. We are able to do this, but please note we are unable to quantify some of these waves. As such, this is our alternate count. Question then is also if this a 5-wave minute-a of minor-b, or the start of a new uptrend (minor-1 of intermediate v) with SPX2322 as intermediate iv.

If the market follows this path nonetheless, it should now be in wave-4 of minor-1/a, after hitting SPX2370 on Thursday. If so, the S&P500 should not drop below SPX2358 +/-1p. If that level holds, then the market should rally to SPX2374-2379 to complete a 5-wave sequence up for wave-1/a. If price does drop below SPX2358+/1p, then we expect SPX2346-2341 for minute-b of minor-b.

To add weight to the evidence, market breadth (as measured using the McClellan Oscillator; SPXMO) has been negative during the entire advance off the SPX2322 low. Normally 1st waves are kick off waves, which are accompanied with a surge in positive breadth.  This is underscored by the DOW, which has not shown the same type of advance (at least 3 big up days) as it did off the prior 3 lows since February last year. Each of those kickoffs launched the DOW back over the 20d SMA, and turned it back it. This is not the case now.

dow daily TI

Hence, and because it has been over a month since the S&P500 and DOW made new ATHs, while also closing down for the month of March, we remain suspect of the current “rally” until proven otherwise.

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