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Santa Rally Should Ideally Push S&P 500 To Around 4975

By Dr. Arnout ter Schure Stock MarketsDec 30, 2021 04:11PM ET
www.investing.com/analysis/santa-rally-should-ideally-push-the-sp-500-to-around-4975-200613130
Santa Rally Should Ideally Push S&P 500 To Around 4975
By Dr. Arnout ter Schure   |  Dec 30, 2021 04:11PM ET
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Over a month ago, I wrote that the S&P 500 topped 6p shy of the ideal upside target of SPX 4750-4800 I found weeks before that using the Elliott Wave Principle (EWP) and technical analysis. I then outlined:

“Now, the market will have to thread through a needle...[as], the upside potential is ideally around 120p on the SPX, while the downside risk is now potentially 300p. How do we know? A drop below the Nov. 10 low of SPX4630 without making a new ATH will be an excellent signal that SPX4350+/-50 is, at some point, most likely next. On the other hand, a rally back above SPX4725 will be a perfect signal that SPX 4800+ is next.

Figure 1. S&P 500 weekly candlestick chart with detailed EWP count

S&P 500 Weekly Candlestick Chart
S&P 500 Weekly Candlestick Chart

The bulls fumbled the ball on Nov. 26 as the index dropped below SPX 4630 that day and bottomed at SPX 4495 on Dec. 3, which was 95p (2.2%) above my ideal target zone of SPX 4350+/-50 and, thus, well within my 95% accuracy level.

Besides, as I always say, “in bull markets, upside surprises and downside disappoints.” Since that low, the index has rallied to new all-time highs, and as I told my premium major market members since last week, “as long as the Dec. 20 low holds, I expect SPX 4975 to be reached.” Why? See figure 1 above.

Namely, (red) intermediate waves iii and -iv were completed on Nov. 26 and Dec. 3, respectively. Now, red wave-v is underway. Note how wave-iii topped almost precisely at the 161.80% extension (SPX 4735 vs. SPX 4744) and how wave-iv bottomed close to the SPX 4439-4490 target zone, with the upper level the 1.236x extension of (red) intermediate wave-i, measured from the late January wave-ii low, hence, why I anticipated a low at around SPX 4350+/-50.

Since 5th waves often target the 200% extension of the 1st wave, and comprise five smaller waves, i.e., the EWP is fractal in nature; it is logical to expect the SPX to reach SPX 4980. Besides, and albeit a bit hard to read on the chart, the five (green) minor waves that build (red) intermediate wave-v target ideally SPX 4968. This wave-v is then “only” the end of an even more significant 3rd wave, (black) major wave-3, which started in October 2020 at the major-2 low. Moreover, the 1.236x extension of wave-1 resides at SPX 4960. Thus, barring any unforeseeable extensions, there is Fibonacci confluence at SPX 4960-4980. Such a cluster often acts as a magnet for the market.

Bottom line: The S&P 500 lost the critical SPX 4630 in late November, bottomed 2% shy of my ideal downside target on Dec. 3, and now the index is already trading at new all-time highs. Thus, the SPX has so far carved out a nice 3rd wave top and 4th wave bottom almost precisely where it should have based on the typical Fibonacci extensions and retraces for these two waves.

Now, the next 5th wave should be under way, subdividing into five smaller waves and targeting SPX 4960-4980 ideally. Once that level is reached a more significant 3rd wave should top, and another multi-week correction should unfold before the (final?!) run to SPX 6000 gets under way. This anticipated EWP path should unfold if the Dec. 20 low at SPX 4531 holds.

Santa Rally Should Ideally Push S&P 500 To Around 4975
 

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Santa Rally Should Ideally Push S&P 500 To Around 4975

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Comments (16)
vitortugauk Alb
vitortugauk Jan 03, 2022 8:43AM ET
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Thank for sharing your analysis, I have similar counts and targets as you both for the SP500 and Nasdaq, the only difference is that I don’t think the intermediate 4 correction is over yet and this seems to be the case with European indices too.
Jay Bay
Jay Bay Dec 31, 2021 5:39AM ET
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Great article as always, but... do you really think SPX is heading to 6000? With tapering and possible recession coming?
Peter ONeill
Peter ONeill Dec 31, 2021 5:39AM ET
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In 2024-2025 maybe - none of the main banks see 6,000 being hit in 2022 (most suggest 4,400 - 5,300 with a mean average of the market moving sideways in 2022 to end @ 4,800 by the end of 2022). I personally could see a 25%+ correction around Q2 results if inflation/supply bottlenecks/ labor shortages are not resolved (so hitting about 3800 - the same level in Jan 2021). Before recovering to around 4,400 by the end of next year (perhaps recovering slower if markets get spooked by US Nov election results and potential legislation gridlock). But just my own view based on trends and data coming out.
Peter ONeill
Peter ONeill Dec 31, 2021 5:39AM ET
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Plus looking at long-term Trajectory. It took the S & P 12 years after first hitting 1,200 (reached in June 2005... if you ignore the dot-com bubble) to 2,400 (reached in June 2017). It has now doubled in value in 3 and a half years from 2,400 to 4,800. Vast majority of that growth isn't sustainable company expansion - but Fed printing presses, Lower corporate taxes, massive corporate debt and Low-interest rates fueling a debt bubble...all bubbles pop...just when not if they burst.
Rajesh Kumar
Rajesh Kumar Dec 31, 2021 4:03AM ET
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I didn't see any rally. No rally this year.
Steffen vdm
Steffen vdm Dec 31, 2021 2:53AM ET
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We had one big Santa Rally the last 12 months....
All In
All In Dec 30, 2021 8:58PM ET
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so spx up 175 points tommorrow?
Peter ONeill
Peter ONeill Dec 30, 2021 8:58PM ET
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Traditionally the Santa Claus Rally is the last 5 trading days of the year and the first 2 trading days of the following year. Can I see S&P rise by 200 points or 4% in 3 days? Maybe - but only as the market is in a bubble so anything is possible once greed and FOMO set in.
Richard Tomlin
Richard Tomlin Dec 30, 2021 8:58PM ET
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dreaming the Santa rally is over with inflation and gas prices going up
Sean Livingstone
Sean Livingstone Dec 30, 2021 8:33PM ET
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Nope....
Zebra Lo
Zebra Lo Dec 30, 2021 7:30PM ET
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The greedy wallstreet with these so called expert will continue to push the bull, pretending US is the best times, no pandemic, no inflation, gdp no contraction… untill one day when you put all your money in the market they will suddenly release all the bear and fear to get all your money
Naveed Mushtaq
Naveed Mushtaq Dec 30, 2021 6:59PM ET
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Thank you Dr and Seasons Greetings. What will be the inplications if 4531 does not hold?
Al Ose
Al Ose Dec 30, 2021 6:59PM ET
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4530
Steffen vdm
Steffen vdm Dec 30, 2021 6:59PM ET
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Steffen vdm
Steffen vdm Dec 30, 2021 6:59PM ET
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Peter ONeill
Peter ONeill Dec 30, 2021 6:10PM ET
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Most major banks (Including Goldman Sachs and Wells Fargo) have called for the S&P to hit 5100 by the END of 2022 (so about a 7% increase). Morgan Stanley is projecting it will actually fall to 4300 (about a 12% fall).  Yet you are projecting 4975 by the end of 2021??? 6000 for S&P = 100% growth in 3 years - does ANYONE think that is real growth despite all of the lockdowns etc??? It's an artificial Fed Debt bubble that will pop at some stage.....  Indeed the highest projection I have seen from any of the major investment banks is Credit Suisse at 5,200 by the end of 2022. Will S&P hit 6000? Yes eventually, but say you're looking more at late 2023 or 2025 before it does with a lot of bumps to overcome in 2022 (plus the Fed at this stage is out of ammo unless it wants inflation even worse).
Peter ONeill
Peter ONeill Dec 30, 2021 6:10PM ET
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2023 or 2024 - my bad :P
Shane Zhang
Shane Zhang Dec 30, 2021 6:10PM ET
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Fed's only bullet left is to crash USD.
Peter ONeill
Peter ONeill Dec 30, 2021 6:10PM ET
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Shane Zhang  Well one of the main bullets left is nuclear - raise Interest rates back to pre covid levels much more rapidly than projecting correctly (so to about 2.25%-2.5% in 12 months instead of 24 months). Would fix a lot of the inflation issues and issues 'the working man' is facing - with a LOT of cash already in circulation, shouldn't worry about liquidity. The Main probably here is it would tank the stock market. But in a nov election year where the biggest voter on the street concern is inflation, property prices and cost to fill your gas tank - anything is possible esp with Biden at such a low approval rating.
Ac Tektrader
Ac Tektrader Dec 30, 2021 5:10PM ET
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mk... several technical analysts have suggested the spx could flurt with 5000 before the market starts a major correction. I happen to agree..... while the USD. still remains in it's price consolidation, the USD is sending some minor topping signals. watch the Euro.
Satoshi Nakamoto
Satoshi Nakamoto Dec 30, 2021 5:10PM ET
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Not much of a Santa-Rally, i.e. Tom Lee was wrong again. There will be a rally soon as covid ends thanks to omicron.
Peter ONeill
Peter ONeill Dec 30, 2021 5:10PM ET
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The Covid ends rally started in March 2020 and has not stopped since (why would it with Fed saturating the market with cash). The main concerns in 2022 will move onto global Inflation due to all of this QE, supply bottlenecks, labour shortages, housing shortages, Global Debt Hangover (both national and corporate) and rising tensions with China / Russia.... and UK vs EU over Brexit.
Shane Zhang
Shane Zhang Dec 30, 2021 4:59PM ET
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Does Gold to Dow ratio entering into a long term bull maybe it time for USD for a big crash since fed's only bullet left is to crash their currency
MK MK
MK MK Dec 30, 2021 4:17PM ET
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That must be a joke ))) It will take years for SP to reach 6000 unless total collapse of USD
Show previous replies (2)
Peter ONeill
Peter ONeill Dec 30, 2021 4:17PM ET
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Dr. Arnout ter Schure  Goldman Sachs, Morgan Stanley, Merrill Lynch, Wells Fargo. Barclays, BofA, Credit Suisse and Citigroup are all projecting a range of 4,400 - 5,200 by the end of 2022 (None are projecting anywhere near 6,000). The mean average seems to be around 4,800 so the market going sideways rather than upwards over the next 12 months.  Profits were projected to rise by 45% in 2021 and they largely did on the back of large QE. But projections for 2022 are for profits to come back down to 6%-9% yoy growth and 3%-4% from 2023. PE ratios are still 35%-40% above their long-term averages as share prices ran far ahead of even these rising profit levels (so 2022 will be more of a catch-up year). But plenty of landmines up ahead.
Peter ONeill
Peter ONeill Dec 30, 2021 4:17PM ET
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Dr. Arnout ter Schure  So pulling the main bank's projections for the end of 2022 for the S&P 500: Credit Suisse 5,200 Goldman Sachs 5,100 JPMorgan 5,050 RBC 5,050 Deutsche Bank 5,000 Citigroup 4,900 Barclays 4,800 BofA 4,600 Morgan Stanley 4,400
Shane Zhang
Shane Zhang Dec 30, 2021 4:17PM ET
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Peter ONeill  Most of those bank just provide projection.  But Dr often give entry stop and target.  Anything less than those is piece of garbage
Peter ONeill
Peter ONeill Dec 30, 2021 4:17PM ET
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Shane Zhang  Yes which is fine if you are a short seller or short-term investor. But the fact is following short-term trends is only useful for very short-term analysis. Long and medium-term projections have far too many variables and what-ifs to base on short-term trend lines. So guessing the S&P could reach 6,000 in 2022 when every investment bank says otherwise (who no offense, but their analysis is done by 1,000s of economic / finance/ data and commerce experts - not 1 person who up until a few years ago specialized in environmental science. I know who I think might be closer to being right. Plus chances are no one will get it 100% correct as again there are too many variables when looking at medium and long-term movements. But not a single bank says the market trajectory and trends we have seen since 2020 will be maintained in 2022. Most of these trends were artificial due to Fed interventions which will not happen in 2022 (if anything the Fed will tighten policy to fight inflation).
Shane Zhang
Shane Zhang Dec 30, 2021 4:17PM ET
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Peter ONeill  Still whether you are trading 5 min or medium term we still need good risk management plan.  In the end of the date your account says everything.
Quy Nguyen
Quy Nguyen Dec 30, 2021 11:43AM ET
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Happy New year Dr. thank you sharing your knowledge.
Dr. Arnout ter Schure
Dr. Arnout ter Schure Dec 30, 2021 11:43AM ET
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thank you!! likewise!!
CJ Mc
CJ Mc Dec 30, 2021 10:59AM ET
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Happy Holidays to you and your loved ones :)
Dr. Arnout ter Schure
Dr. Arnout ter Schure Dec 30, 2021 10:59AM ET
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thank you and likewise
 
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