As the stock market has climbed higher, before Monday’s action, nothing has suggested that a top has yet been struck.
In fact, I still have a target in the 2,875-point region on the S&P 500 Index SPX, -1.23% which could be achieved as long as the index remains over support in the coming week.
Ever since the correction at the end of 2018, my expectation was for this b-wave to rally back up to at least the 2,800 level. And the manner in which we have rallied still supports my expectation that this rally is a b-wave, which will turn us down strongly in the coming weeks.
Read: The U.S. stock market has now split into the ‘haves’ and ‘have nots’
However, the manner in which the market is subdividing up here over the prior week causes me to slightly adjust my wave analysis, as it seems to be taking shape as an ending diagonal in this [c] wave within the [a][b][c] structure of this b-wave rally.
This slight adjustment also requires me to adjust my support down to the 2,750/2,760 region. And, as long as that support is held early in the coming week, I still think we can attain the 2,875 region target to complete this b-wave.
But please recognize that risks have clearly risen. As I have been noting in my updates during the week, the daily moving average convergence divergence (MACD) has risen to heights only seen in January 2018 and March 2000. Moreover, the daily MACD has turned negative, which means that any further price highs will likely be accompanied by a negative divergence in the daily MACD, strongly suggesting a top will likely be struck within the next few weeks.
Once this rally is completed, I still believe we can drop down to the 2,100-2,200 region in a c-wave decline to complete this larger-degree 4th wave correction off the 2009 low. Once we complete this 4th wave, we should begin our 5th wave higher, with a minimum target of 3,200, but, more ideally, as high as the 4,000/4,100 region in the 2022-2023 time frame. And once we have waves one and two in place within that 5th wave higher, we will be able to identify that target more accurately.
Alternatively, as you can see from the yellow count on my charts, if the next decline begins in a corrective manner, then I may have to consider that the 4th wave was completed in December, with the high we strike in the coming weeks counting as wave i of wave 5. That means I would expect we still pull back to the 2,500-2,600 region in a wave ii. However, I still maintain this perspective as an alternative, which the market must prove to me, as I still view the ongoing 4th wave as the greater likelihood at this time.
View additional charts illustrating Avi’s wave counts on the S&P 500 across various time frames.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
