The great thing about being a market technician today vs. less than ten years ago is instant access to the crowd. That is, social media. As I hope most of you know, I post somewhat regularly on Twitter. I also analyze the market mood on Twitter and, right now, the bulls are celebrating like its 1999. All right, I’m exaggerating a bit, but the mood from the bulls is about as high as I’ve seen since the recovery after the October 2014 stock market swoon.
This, of course, worries a technician who tries to stay in tune with market sentiment.
I think the most logical path for the stock market in the next month or two, and based on market sentiment and a simple Elliott Wave count, is either a pullback or a final move up to the all-time-high area for the S&P 500 of 2,135… and then a pullback. This would set the stage for a fairly large move by the “500” of at least a couple of hundred points. It’s too early for price targets, but an advance to the 2,300 to 2,500 area is very possible.
I will get back to sentiment in a bit, but why won’t the market just continue to just melt up from here, as so many are saying. Quite simply, melt ups (grind higher with small pullbacks) generally occur during Wave 3’s. It appears that the final or Primary Wave 5 of this bull market started in February, but Major Wave 1 within this last wave is on its last legs. So it’s possible that Major Wave 2 (corrective wave) is upon us, and once that completes, Major Wave 3 of 5 can begin and we will finally get into the sweet spot of this final advance. In other words, a sustainable, narrow channel advance far exceeding the old highs.
So how far can the proposed S&P 500 pullback go on the downside? That’s tricky because Wave 2’s tend to retrace a big part of Wave 1’s during the earlier parts of a bull market. However, they do not retrace as much during the latter (giddy) phase of a bull market. Initial chart support comes in at 2,085 from last week’s intraday low, with the rising 50-day average at 2,076. Trendline support, off the lows since February, and projecting out to next week, comes in between 2,080 and 2,085. A minor 23.6% retracement of the rally since February targets the 2,047 area. The recent low in May and potential chart support is at 2,026 with the 200-day average at 2,013. A 38.2% retrace targets the 2,000 area.
At the current time, it doesn’t make sense to provide deeper price supports. That can be dealt with if/when 2000 is lost.
S&P 500 Index – Daily Chart
Thanks for reading and best of luck out there. You can contact me at arbetermark@gmail.com for premium newsletter inquiries.
Twitter: @MarkArbeter
The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
