As more investors turn bearish on the stock market, it makes it less likely that the drop to our ideal S&P 500 Index target in the 2,200-point region for 2019 will begin any time soon. In fact, I don’t think we will see such a setup for that type of drop for a minimum of several months.
Investors with experience have recognized the changing nature of the market. When we see 25-plus point swings becoming commonplace, it is often representative of bear-market moves rather than a bull market with upside remaining. And this type of market action is certainly supporting our longer-term perspective that a larger-degree wave 4 is likely upon us.
So does that mean 3,011 points in the S&P 500 SPX, -0.04% is completely out of the question before we see 2,200? The answer to that question is “no.” You see, the market still retains a low probability to rally back toward that region in the ending diagonal scenario presented in blue on my 60-minute chart. But, again, I still have no clear indications that this is the market’s intention.
Moreover, when the larger-degree impulsive structure of the market comes up short on its bullish target, we often see the b-wave of the ensuing correction provide us with an expanded corrective structure, wherein it stretches to a higher high to strike the target missed by the impulsive bullish move. So I have added an alternative b-wave target in yellow on my daily chart. But before we even consider that potential, the market must provide us with a completed a-wave down toward the 2,600 region in the coming weeks.
R.N. Elliott noted that, while impulsive structures are rather predictable in their general nature, corrective structures are unusually variable. And, since we are now dealing with corrective 3-wave structures, the market has become much more treacherous. In my mid-week live video to our members, I outlined where I would consider buying long positions in the index toward 3,011 points. And until the market can prove that to me, I am favoring the downside structure, with the next long-side buying opportunity not coming until we complete the a-wave down into the 2,600 region.
Yet, there are still a number of stocks that seem to have unfinished business on the upside over the coming months. In fact, Garrett Patten, one of our lead analysts in our StockWaves service at Elliottwavetrader.net, just posted analysis for approximately 50 stocks that seem best positioned to rally higher into the end of the year. So for anyone still interested in any remaining upside in the market, I view that as a much safer and higher-probability manner in which you can attempt to play the market on the long side into the end of the year.
In the coming week, I suspect the market is setting up that decline toward the 2,600 region. Whether it is a direct route or an indirect route will depend on if the market can exceed the high we struck on Friday.
And when the market finally completes its a-wave down toward the 2,600 region, I think we will have a buying opportunity for a rally back toward at least 2,800 points, with some potential still being retained for the rally to 3,011, as mentioned earlier in this analysis. But once that rally off the 2,600 region is completed, that will likely begin our setup for the drop down to as low as the 2,200 region in 2019. As I started this article by noting, we are likely months away from that potential.
See detailed charts illustrating the wave counts on the S&P 500.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex, and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.
