S&P500 Update: Bumpy Roads Ahead?

In last week’s update, when the S&P500 was trading at SPX2735ish, I found “the current downside could be nearing its end as price is getting very close to the wave-iii/c of wave-3/c target zones. Why do I label the current price action as both letters and numbers? Because to remain intellectually honest one must as an Elliott wave practitioner always label waves initially as either corrective (a,b,c) or impulsive (1,2,3) until one of the two is disproved because nobody knows with absolute certainty beforehand what the market will do: move in three’s (a,b,c) OR in five’s (i,iii,iii,iv,v) be it either up or down? So as the markets are wrapping up what appears are some final smaller 4th and 5th waves, which can reach as low as SPX2700 but not necessarily…” and I wondered if we’d see first more down and then up, or first up then down.

Well, we got our answers:

  1. the downside was indeed nearing its end (only 7p away): Bingo!
  2. marking the decline intellectually honest as being either 1,2,3 or a,b,c proofed correct because it was an a,b,c
  3. since then it was up, up, and some more up

In fact the upside has been strong enough, albeit still well-within normal bounce parameters, that we should reconsider the possibility a new Bull off the December 2018 low has started. More about that later. For now, price managed to go 8p above the ideal target zone I set forth for my premium members in last week’s June 4 daily market update. Since the “bounce aka wave-b of C underway” scenario is my preferred POV until disproved, the recent -no pullback- price action leaves a lot to be desired. Namely,

  1. This could mark ALL of wave-b of C
  2. This could only mark wave-a of -b of C (wave-b is becoming more complex).

It depends on if the recent five-day long rally was enough to turn all traders and investors bullish enough for a rug pull (wave-c of C) or if more time is required? If he latter than wave-b will become complex and can do the following two most likely things:

  1. retrace some of the SPX2728-2911 rally and then rally to SPX2950ish, similarly to the February-March 2018 price action, or;
  2. retrace almost all of the recent rally, and then stage a second large bounce back to current levels, like the S&P500 did October-November 2018

There is currently not enough price action available to tell us which of these three (trap) doors the market will ultimately decide to take, so we’ll simple have to stay nimble and follow. Once things become clearer again, one can get more aggressive on the down- or upside.

That brings me to the alternate option in that the recent advance could have been already wave-i of 3 of V and the market is gearing up for it’s last run to SPX3500+ by 2020/2021 before entering a very severe multi-year bear market. For this to become the main option, we need to see another corrective decline not to go below SPX2728 and then a decisive move over SPX2954. Until that happens things will unfortunately remain somewhat unclear and my focus remains to look down.

So, when uncertainty is something you find hard to trade, but unfortunately it’s the only thing we have, then a proven price-based trend-following trading system is the way to go: On May 20th I launched my new trading systems (PMTS) for my followers on my private twitter trading feed and my short-term system is already up 8.7% in four easy trades while the S&P500 (per the SPY) only added 1.5%. Check it out and give it a try I’d say.

Arnout, Ph.D.

Founder and President Intelligent Investing, LLC 
Vice President NorthPost Partners, LP

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