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S&P 500 Bears: Pay Me Now Or Pay Me A Little Bit Later

By Dr. Arnout ter Schure Stock MarketsAug 04, 2021 03:05PM ET
www.investing.com/analysis/sp-500-bears-pay-me-now-or-pay-me-a-little-bit-later-200596166
S&P 500 Bears: Pay Me Now Or Pay Me A Little Bit Later
By Dr. Arnout ter Schure   |  Aug 04, 2021 03:05PM ET
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A month ago, when the S&P 500 was trading at 4370, I provided insights on the deteriorating market breadth of late, giving me pause about continuing the rally. See here. The index topped three trading days later at 4393, dropped six trading days later to the 4230s, and has since recovered to around 4410+/-10. Thus, the index has rallied a “whopping” 0.9% in a month while suffering an intermediate 3.6% drop. My conclusion back then:

“… I don’t expect a 35% correction, but anything in between 5-10% will suffice to reset the clock before the next rally can start.

That conclusion was, thus, appropriate and correct.

While most of the mentioned negative divergences in market breadth persist, the question is if the next rally will stall around current levels and bring prices back to around 4150+/-50 or allow for the last rally to the 4535-4595 level before we see an around 300p drop. Thus, bears, it is a “pay me now, or pay me later” scenario as shown in Figure 1 below.

Figure 1: S&P 500 hourly charts with detailed EWP counts since the March 4 lows.

S&P 500 Daily Chart.
S&P 500 Daily Chart.

The two different Elliott Wave Principle (EWP) paths I am tracking for the S&P 500 are shown in Figures 1A and B above. Figure 1A tells us the index topped at 4393 in early July for wave-3 and is now working on an irregular flat wave-4, with the 4233 low wave-a, the current rally wave-b, and wave-c pending. From the ideal wave-4 target zone, 4052-4177, I then expect the next rally to 4700. A daily close below 4370 (horizontal red line, this week’s and last week’s low) will strongly suggest this scenario is going to unfold.

Alternatively, see Figure 1B, the index will grind higher to complete (orange) wave-c of (grey) wave-v of (green) wave-5, etc., at around 4550-4600, with an ideal target zone of 4535-4595. It requires a daily close above 4450 to strongly suggest this path is operable, with confirmation above 4475. That is as high as I can allow the aforementioned possible b-wave to extend from an EWP perspective. The pending (black) wave-4 will then, ideally, bring the price back to around 4250+/-25p before the next multi-week rally to around 4900 starts.

Thus, my foresight of a month ago to expect a correction and then a rally came and went. Now, the market can decide if the next ~300p correction for the S&P 500 will start from around current levels or from about 150-200p higher. As such, please know your trading time frame and risk/reward from current levels as even scenario 1B has the index likely drop 200p below current levels once 4535-4595 is reached. Big picture-wise, I see this bull run will last well into 2022, and the described pending “pay me now or later” correction is merely another excellent buying opportunity.

S&P 500 Bears: Pay Me Now Or Pay Me A Little Bit Later
 

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S&P 500 Bears: Pay Me Now Or Pay Me A Little Bit Later

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Comments (9)
Andrew Bevan
Andrew Bevan Aug 07, 2021 3:32AM ET
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I don't think you can see estimates fall outside your target range and still claim a hit, but there is still room to explain what you think is going on and where you the market is in a movement.
Shahid Huda
Shahid Huda Aug 05, 2021 3:47AM ET
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yes this is a bubble
Fab De
Fab___De Aug 05, 2021 1:39AM ET
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Will go up except if it goes down
Dr. Arnout ter Schure
Dr. Arnout ter Schure Aug 05, 2021 1:39AM ET
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that is absolutely right, but few know the triggers, i.e. price levels, that will tell you which way it is going to be. with my work there are few surprises.
Kool Aid
Kool Aid Aug 04, 2021 8:05PM ET
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Thanks Dr.  Your analysis is appreciated as always. In case anyone is wondering about his track record check out his work on NDX a few months back.  Spot on...
Dr. Arnout ter Schure
Dr. Arnout ter Schure Aug 04, 2021 8:05PM ET
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thank you! I guess it is time again to provide more regular updates on the NDX again.
my name
my name Aug 04, 2021 6:19PM ET
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3.6% drop is not 5-10% drop - your conclusion was WRONG!
Luu Hung
Luu Hung Aug 04, 2021 6:19PM ET
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Then dont read & F off
Kelly Brimmer
Kelly Brimmer Aug 04, 2021 5:36PM ET
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Love your work just keep waiting for the big dip to jump on it. Thanks for all your work.
Famakinde Lomi
Famakinde Lomi Aug 04, 2021 5:19PM ET
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Thanks Dr. There is no 30% correction this year again
Dr. Arnout ter Schure
Dr. Arnout ter Schure Aug 04, 2021 5:19PM ET
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correct, probably not until 2023/2024
Frag Carole
Frag Carole Aug 04, 2021 5:19PM ET
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What would be the catalyst?
jason xx
jason xx Aug 04, 2021 4:00PM ET
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Agreed then and now and so do a lot of TA people but the correction just will not happen. Unknown factors have to be holding this index up.
Andrew Allen
Andrew Allen Aug 04, 2021 4:00PM ET
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brrrrrrr is what holds it up
Leon Kelly
Leon Kelly Aug 04, 2021 3:09PM ET
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Thanks DR. S&P and NDX suffered a correction early sept after apple and tesla split. I agree with the melt up to 4500 then correction in early Sept with majority of earnings gone
Dr. Arnout ter Schure
Dr. Arnout ter Schure Aug 04, 2021 3:09PM ET
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thanks!
 
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