The major U.S. stock indices continue to rally, and many of them show what appear to be impulsive formations out of the scary spring lows. This week we examine the SPDR S&P 500 ETF Trust (ASX:SPY), which follows the index closely.
Readers will recall that we are treating the price action in most of the indices from late 2018 into early 2020 as large fourth-wave corrections. In that scenario, we would expect some type of motive pattern to emerge and eventually take prices to new highs in wave [v]. The first leg (i) of the motive pattern should be an Elliott wave impulse, or five-wave structure.
The rally since the March 23 low has been quite steep, but the expected five-wave structure is visible on a daily chart (not shown here). We count it as nearly complete as it approaches an area of potential resistance that we derive from weekly and monthly charts.
On the weekly chart of SPY (NYSE:SPY) shown below, much of the action within wave [iv] has recognized the elements of an upward-sloping channel. The imminent test of the main upper boundary would make the 313 area an attractive cap for wave (i).
If SPY retreats from the 313 area, then typical Fibonacci retracement supports would await at 277, 265 and 255. The lowest of those supports might coincide with a test of the other main channel boundary later this year. We have additional reasons to watch the 313 area for a reversal in SPY. Note that the adaptive CCI momentum indicator is on the verge of testing its zero line – an event that often coincides with a reversal of some magnitude.
There’s also a long-running channel we’ve been watching on a monthly logarithmic chart (above) that puts a boundary test in the 313 price area (approximately 2.495 on the base 10 log scale). We believe price can move back into the main channel area eventually, but it probably will need to put in a retreat first.