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With Bullish Wedge On S&P 500 Completed, 4600+ Target On Track

Published 03/17/2022, 03:14 PM
Updated 07/09/2023, 06:31 AM

Last week, while most traders, investors and market pundits were doing Chicken Littles and selling doom and gloom stories, I used objective analyses of charts and data to conclude a rally– -and not a crash – was the most likely scenario. See here. Namely, I found the S&P 500:

  • was forming a (bullish) falling wedge;
  • exhibited positive divergence between price and several technical indicators;
  • sentiment was highly bearish; albeit the index had only done a garden-variety 13% correction;
  • seasonality was pointing towards an essential low around mid-March.

Providing all these facts told me the weight of the evidence was pointing toward higher prices, not lower, and that a rally to SPX 4600+ would be in order.

One week later, the index is already trading at SPX 4400, as it broke out of the wedge yesterday. Once again: objective analyses 1, emotions and opinions 0.

Figure 1. S&P 500 daily line charts with technical patterns and indicators:

S&P 500 Daily Chart.

SPX 4600 Next, Pullback, Then A Rally?

The 50- and 200-day Simple Moving Averages (SMAs) at SPX 4437 and SPX 4470, respectively, should provide some resistance, but based on my Elliott Wave Principle (EWP) work, I expect the stock markets to have put in a lasting bottom, and that a subdividing five-wave rally to SPX 5500-6000 is now under way. Namely, the Feb. 24 low was for the SPX a fourth wave low, and now wave-5 is under way. Based on current data available, I anticipate the first wave of wave-5 to top out at around SPX 4600. The second wave should be a multi-day few hundred points correction before wave-iii of 5 targets, ideally, SPX 5100+/-100.

Bottom Line: Last week, when the S&P 500 was trading at around 4200, I found the index was exhibiting a bullish pattern, called a falling wedge or an ending diagonal C-wave in EWP terms. This pattern projected a move to SPX 4600+. Four trading days later, the SPX is trading at 4400, an almost 5% gain, whereas nearly everybody had jumped on the bearish bandwagon. I, therefore, still expect the index to top out at 4600+/-100, a pullback to around 4400+/-100, and then a rally to SPX5100+/-100. The devil remains in the exact details, but I am not too concerned about those. I prefer to focus on the forest and not the trees. Ultimately, the melt-up to SPX 5500-6000 should be under way as anticipated.

In November, I was looking for a 10-15% correction. See here.

Latest comments

Great analysis!
Great to read your take excellent job hope you doin great man .....fotis2
3000 soon
so no pullback from inflation squeeze, no QE, higher interest rates, supply chain issues, neon output, covid in china and a possible world War? cool, 10k here we come! just watch out for the cliff ahead...
interest and inflation already priced in. China already opened back up after 4 days of lockdowns. war already priced in until ACTUAL & FACTUAL ww takes place. you are a big sour puss huh? that bearish position you are holding has you believing in everything
oh, and 1 more interesting fact you left out. UNEMPLOYMENT dropped yesterday too. But I guess that is bearish too huh?
Wall Street gamma squeeze needed to wipe ot shorts to take more money is all this is, too many shorts were hurting their downward profits. Surprise is their way to most profits.Algo driven squeeze is all this is, Elliot wave and printed lies put out will not save the market from dropping. More like heading towards 3000 as said in above comment.
Great. how about the Nasdaq?
A rally to 6000? Sounds like you’re using all that money you’re making to ******crack smoke up people’s butts
Does EWP adjust your RSI? I've seen 1 CMT change to 40, 60, 80.
I really enjoy reading your articles as they are fact based, ie off charts and not just willy nilly guesses. That being said I just am not sure we keep going up. To me it would take Russia ending it war + the Fed pulling off the merical of a lifetime in bringing inflation down without crashing the whole economy and putting us into a recession. And that’s not even taking into account the current political climate. While I am mostly in all cash so I dont have a horse in this race at the moment I just do not see a catalyst to push this higher without a serious downturn first.
Thank you for your analysis and documented previous work Dr. S. Curious if you also analyze Gold? Would love to get your thoughts and analysis on it. I went thru your previous articles and did not see anyhting.
We have hyper inflation which will put us in a recession. Fed will have to reverse and ease and buy bonds again. Market losses faith everything collapses into a depression. Gold goes to 10000. This will happen this year. Good chance it could be worse. Thanks.
Same as 2008 but no fiscal monetary polices available to stimulate economy and inflation is pegged at 10 percent with food and energy shortages. High Labor costs are now fixed into the system.
 No resemblance to 2008.  That was a financial collapse.  Current economy is very strong.
My EWP analysis gives me a target of 3200 for SP 500 without hitting 4600 again
yea! let's go back to 60 p/e ratios! no problems here lol
As always, thanks Doc!!!
so if youre calling everything right all the time, you must have mountains of cash stacked up all over your many mansions. frankly i am still pessimistic. you may be looking at charts but im looking at the real world in my town and its falling apart.
yup, simply put...this an a short squeeze that was going to happen no matter what. otherwise the market would tank....but the market makers don't like that game unless they're ready for it. obviously they're not
sometimes a war and historical inflation will mess up a chart....just saying. fake breakouts are always a part of every bull market, that's how large money managers draw in the necessary buyers that the money managers are looking to unload on.
*I meant to say "part of every bear market..."
Thats what makes a market. This is a bounce from extreme oversold conditions on the daily charts. Its possible to see 460-465 spy, but I do not believe the low is in for this year. I think June is the best chance to breach spy 400. My advice is to be nimble and keep trading positions light.
I remember you say the SP500 will begin the bear when the war begin.  Is this the war you are talking about.  If so how could this go to 5P500 go to 6k.  Do we rule out the bear top already already begin?
Read your last article when everyone else was so so bearish. Great job keep it up!
Not a chance, tech is going anchor down things for considerable future, why?Look at FED, look at Philly FED, NY FED manuf indexes, look at retail, yet, inflation slogs up, actually, it's not slogging it's going up a 1/4 % daily and may get to a 1/2, one things first sure, with only a 0.25% hike you'll see 9%+ CPI next report and continuing dwindling macro data, charts and graphs be, well. I just wouldn't be so flooded with enthusiasm in 2022. GDP will continue getting downwardly revised data point to data point as supply chokes tech, yes, even as the ultra-rich consumer spends mass disposable income.Wall Street is a forward looking entity & oil & rates going up, way up. Gold too
No you underestimate the relief from covid recovery and liquidity being sucked out of bond markets with the end of stimulus buying
You parrot the exact same argument everyone else is making then have the nerve to end the plagiarism with a rhetorical "why?"
opinions are for cocktail parties. Keep trading your opinions and I will trade my fact-based analyses and in the end, compare notes. ok?! because based on your opinion one should be heavily short the market, whereas based on my work one should have gone long the breakout yesterday!
Great article, did you post anything about this before the rally?
yes, last week, as stated clearly in the article I already posted all the evidence on why a rally was much more likely:
Looking like a spot on. Spx seems to be on overbought territory with 3 days of run it probably could see a pull back to 4330 before charging further. I dont see a straight line from 4200 all the way to 4600+
pennies on the dollar pullback! focus on the big picture!
First, SP needs to clear 4419 then we will see..
Meh, you called a nasdaq bottom multiple times. That didnt exactly pan out….
 Door A. Watch and learn or remain forever ignorant!
yes after we broke through a previous low you were calling for weeks back. Then you re- adjusted. I understand not everything happens to plan but calling 10 bottoms and then gloating because you may have called one right - is not exactly “getting it right.”
I can either A- Be right or B- Be wrong. See i told you it was one of those two! Lol
nice call!
thank you! meanwhile, I am sure the haters will continue to find fault with my work....
Nah, just proper refute, it's a well-written article, makes sense, just won't make you a lotto cents
 it would make you money if you bought the break out of the wedge yesterday, which I alerted y'all to last week...
A useful article with specifics. Well done. 👍
thank you!
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