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S&P 500 Update: Expect a Pullback Before Rally to 4300+ Starts

ByDr. Arnout ter Schure
Published 01/12/2023, 01:49 PM
Updated 07/09/2023, 06:31 AM

Happy New Year, everyone. The "Santa Rally" I mentioned in my last update on December 22, 2022 (see here) gave us an +0.80% return. When the index finishes the first five trading days of a year higher, it has been positive more than 80% of the time at year-end with an average gain of about 13%, according to Stock Trader's Almanac. It was up 1.3% on January 9. Thus, 2023 is off to a good start.

Besides, in our last update, we were looking for the S&P 500 (SPX) to bottom in the "green W-5 … ideal target zone of $3725-3755." As per the Elliott Wave Principle (EWP), our primary expectation has been for many weeks

"Once the $3800+/-70 zone is reached, …, we must entertain the notion all of black W-b has already bottomed out. The index will have to move below $3635 (the 76.40% retrace of the October 13 - December 1 rally), with the first warning below $3725, to start to suggest there will not be a more significant C-wave rally to $4300+."

The SPX bottomed at $3764 on the day of our update, only 0.2% (9p) from our ideal target zone. Currently, it trades at $3996. An over 220p, 5.8%, gain in three weeks.

Moreover, it has rallied in what counts best as five waves higher. See Figure 1 below. Alternatively, the current rally from the December 22 low is still only in green W-3.

Since C waves consist of five smaller waves, the current rally should only be red W-i of black W-c of blue W-B. As such, we anticipate a red W-ii soon, ideally down to $3875+/-25, before the red W-iii to ideally $4275+/-50 kicks in. See the red dotted arrows as our anticipated path in Figure 1.

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Thus, our conclusion from before the Holidays, "When combining these facts [seasonality, Santa Rally] with the EWP count, we have been tracking over the last few weeks; it is prudent to conclude that a sustained bottom could be close." was correct. And unless the index breaks back below the December 22 low, with a first warning below $3850, there is no reason for this pattern not to unfold, and the following multi-day correction should be considered a low-risk buying opportunity.

Latest comments

It's had to see on your daily chart, but I think your green wave 4 overlaps your green wave 1. True? Thank you for the analysis.
It's a good chart. Beautifully done. I've saved for reference.
Thank you!
Aloha Dr.Schure! After 20 years in the stock market, I have ventured into the FOREX market. I joined and upgraded here in hope that I would meet a mentor. Could you please suggest any of your peers here at FX STREET? I'm looking for a comprehensive, progressive beginner course on FX. Many thanks in advance!
👍👍👍
Sounds about right. New lows will be formed but not yet. Pullback imminent. Bull run to try break resistance and if not back down again.
Your living IN A FANTASY WORLD. $200 a share times 14x is 2800 at best. And $190 a share is more like what we will bet. Earmings revisions haven’t even come down yet. 30% plus more downside especially the Nasdaq. Qqq puts amd healthcare will make you money. Trust me this is FACT not opinion. Schure is out of his freaking mind. Still thinkinh it’s unlimited QE amd 0% rates. I dont even hear the 9 trillion on the books. Called QT!!! QT is just likebraisong rates. Sl we get date hikes double every month and it still is BARELY quelling inflation. Wale up “dr”. Phd I assume. Ill tale my high school diploma any day over your academic bs. You dont get the Reality of this situation. 15 year fake liquidoty induced rally NOT based on fundamentals but 0% rates and fake QE forever. Again. 2600-2800 s&p bottom MINIMUM and 8-9176$ on nasdaq. This again is a FACT not opinion. This is finance 101 econ 101. You raise fed funds above cpi rate. Where did you go to school??????? Ya sound like a moron
I believe we are going down to 3500 or so, but not in a straight line. Think people get angry because its inevitable and we just like to get there and move on with our lives but its not that simple. Certain technicals cause this kind of movement.
Way way way way way lower than 3500. Do you know how to do basic math. Which is how you value indexes And stocks. 2600-2800 s&p. 200 a share at best times 14X is 2800. At best. Seriously. Learn the RITE WAY to value. Not wishful thinking and hope
It will be a circuit breer multiple days when we go down 6% one day 13% than 20%. Than we will closer to faor value. Now. Miles amd miles from reality. I been in this game 40 years. Seen it all. But this is the worst bubbleInhave eber seen going back to when i starter investing in 1979. If your under 45. You will understand. The rest of you think eberythinh is free and the market only goes up. Hilarious joke
since early November 2022, the markets have been signaling a better than 60% chance of a move to 4300 S&P 500 in the first quarter of 2023. ...artist conner, juan de facto, Maria kenny, bullish post, dave horan, you don't know what you don't know......if I'm wrong it doesn't matter. I'll hedge my position in such a way that I'll make money no matter what happens. that's what successful traders do.
quack
Why?
I dont know what kind of Dr. you are but when it comes to markets you are clueless. The bottom isn’t close to in and “analyst” like yourself who make money shilling for the casino are going to lead a lot of people to the slaughterhouse, you should be ashamed of yourself.
Funny… NOT! Already on October 5th I showed the SPX would ideally drop to 3200-3300 and then rally to ~4300. It bottomed at 3491 on October 13 and is now already at almost 4000… But let that fact not distract you from continuing uttering total nonsense!
Going Long to leave these perma-bulls your bags and then going Short when they're hit with reality has been very profitable
BS
Are you simply letting us know what you are full off?
Very much appreciate your analysis efforts and your reporting. I do not understand this EWP stuff but I like to use your work to support my own opinions and trade direction. Also I like your "if this, then this, else that" style (logical and binary) - helps with identification of warning stops and changes in direction. Thank you
Thank you! Indeed you don’t need to understand the EWP to figure out how to trade. All the best!
You are dreamer for 4300, market is heading down to new lows.
Thanks for this update!
4300 I don't think there's enough dumb money out there
old news. some technical analysts were showing evidence of a 4300 S&P. target for the first quarter of 2023 in November 2022. .... but better late then never.
he was one of them lol
you are correct Dan! Already on October 5th I showed the SPX would ideally drop to 3200-3300 and then rally to ~4300. It bottomed at 3491 on October 13 and is now already at almost 4000… But let that fact not distract us from uttering nonsense ;-)
Thank You Dr. ! Was eagerly waiting for your update.👍
you are welcome
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