The S&P500 Is Gearing Up for 5500+

When Russia unfortunately and sadly invaded Ukraine, the S&P500 (SPX) bottomed at $4115 and has not looked back. That same day, see here, I asked if this would be the start of a Bear market crash. My Elliott Wave Principle (EWP) and technical analysis (TA) based answer was “Not so fast,” as I concluded, “With today’s low at SPX4115, the index achieved its goal and has done enough to put in a longer-lasting bottom. A break back above SPX4590 will tell me the run to SPX5000+ is underway.” Please note that already on February 6, see here, I was looking for “the SPX can still try for a last stab lower to SPX4150+/-50 to complete a more significant 4th wave...”

You probably may have thought I was crazy and wrong, as essentially all traders, investors, and market pundits had jumped on the bearish bandwagon proclaiming the end of the world and WW-III. Still, it is objective, data-driven analyses using time-tested methods that work. However, the score is once again “EWP and TA 1 vs. emotions 0.” That is why people join my premium major market service, to filter out all the daily noise. Or as Joe Friday once said, “Just the facts ma’am.”

Although the index has not broken back above SPX4590 yet, the market breadth readings are so strong (see here and here, for example) that a “breadth thrust” and trend reversal have most likely occurred. I can, therefore, confidently apply a bullish EWP count to the index. See Figure-1 below.

Figure 1. S&P500 daily candlestick charts with detailed EWP count

A relatively uninterrupted rally to SPX4700 before another 200-400p decline?!.

The SPX has seen four consecutive >1% rallies this week. A feature that only has happened four times before in the index’s history. Such a strong rally is often the hallmark of a 3^rd (of a 3^rd) wave. In this case (grey) minute-iii of (green) minor-3 of (red) intermediate-i. The latter is, in turn, part of (black) major-5, but I will get to that in a minute.

Minute wave-iii should ideally top around SPX4500+/10, then a wave-iv back down to SPX4430+/-10, etc. See figure 1. Ideally, the index should top out around SPX4700+/-50 for (red) intermediate-i before a multi-day/week correction kicks in: wave-ii. Of course, the market does not have to follow the ideal Fibonacci-based EWP pattern, but often it does.

Thus it is a great guide and road map. Once intermediate wave-ii completes (in the red target zone 4350-4450), waves iii, iv, and v can ultimately target around SPX5600+. How can I calculate that? Wave-i from 4100->4700, wave-ii at 4400, then wave-v to 4400 + 2 x (4700-4100) = 5600. That should be the ideally (black) major-5 target.

Bottom line: By providing just the facts, I had accurately forecasted where the SPX should bottom (4150+/-50 vs. 4115) and found when Russia invaded Ukraine, the “index achieved its goal and has done enough to put in a longer-lasting bottom.” Three weeks later and the SPX has already rallied an additional 150 points. Applying a short-term EWP path forward suggests we should see a local top at around SPX4700+/-50, then a drop back to around $4400+/-50 from where the index can rally to ~5600.