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

Published 12/30/2021, 04:11 PM
Updated 07/09/2023, 06:31 AM

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

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.

Latest comments

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.
Great article as always, but... do you really think SPX is heading to 6000? With tapering and possible recession coming?
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.
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.
We had one big Santa Rally the last 12 months....
so spx up 175 points tommorrow?
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.
dreaming the Santa rally is over with inflation and gas prices going up
Thank you Dr and Seasons Greetings. What will be the inplications if 4531 does not hold?
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).
2023 or 2024 - my bad :P
Fed's only bullet left is to crash USD.
 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.
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.
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.
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.
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
Happy New year Dr. thank you sharing your knowledge.
thank you!! likewise!!
Happy Holidays to you and your loved ones :)
thank you and likewise
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