Stock Markets Analysis and Opinion

S&P 500: Still Time to Get Bullish on the Cusp of 5000?

2024.02.07 18:17

In our earlier , we anticipated utilizing the Elliott Wave Principle (EWP) for the :

“… W-4 of W-iii to … round $4830+/-10, which is the 23.60-38.2% retracement zone of W-3. It might probably go as little as $4805+/-5, however in uptrends, the draw back usually disappoints, and searching larger is most popular. Once W-4 is accomplished, we should always see W-5 of W-iii to the preferrred (gray) goal zone of $4875-4900. From there, the gray W-iv and -v to ideally $4830-60 and $4915-4945 ought to materialize.

Please observe that the preferrred gray W-v goal zone … falls inside the [higher degree] goal zone of $4883-5026 for purple W-v. Thus, we’ve a comparatively good settlement at three completely different wave levels on the place to anticipate the S&P500 to high.

Fast-forward: The index topped at $4903 on January 24 for W-3 of W-iii; bottomed that very same day at $4865 for W-4 of W-iii, rallied to $4931 on January thirtieth for W-5 of W-iii, bottomed out at $4845 final Wednesday for W-iv, and has now rallied to $4995 for an prolonged W-v.

Thus, our evaluation from three weeks in the past unfolded nicely per the Fibonacci-based impulse sample proven in Figure 1 beneath.

Figure 1. Daily SPX chart with detailed EWP rely and technical indicators

S&P 500 Daily Chart

With the prolonged (gray) W-v now underway, $5026 is the subsequent logical goal as it’s the (purple) 200% extension of purple W-i, measured from the purple W-ii low. It’s a quite common Fifth-wave goal stage. See Figure 2 beneath.

Besides, since we’ve re-labeled the rally from the October 2022 low to a Fifth wave (black W-5) as an alternative of a B-wave, we see that the (black) 200% extension of the black W-1, measured from the black W-2 to the low resides at $5046.

Figure 2. Weekly SPX chart with detailed EWP rely and technical indicators

S&P 500 Weekly Chart

The now 15-week lengthy rally from the October 2022 low has basically been straight up: there’s solely been one down week since. In EWP phrases, it’s referred to as a non-subdividing wave, typical for a Fifth wave. For instance, examine it with the purple W-iii, which consists of 5 exact smaller (inexperienced) waves.

Moreover, the decrease panel in Figure 2 reveals the 14-week Money Flow Indicator (MFI14), which final week registered its 2nd highest studying (94.05) since information grew to become out there 42 years in the past. Even readings above 92 are extraordinarily uncommon. They occurred solely in 1995, 1997, 1998, 2011, 2012, 2014, and 2018.

Here, we wish to look solely at the MFI14>92 events after the 2009 Bear market to examine apples to apples. In 2011, the index gained ~2% over the subsequent a number of weeks and misplaced 21% eight months later. In 2012, the index misplaced 11% three months later. In 2014, the index misplaced 5% just a few weeks later. Regained all losses however then misplaced 10% six months after the excessive MFI14 studying.

In December 2018, the index gained ~8% over the subsequent few weeks, misplaced 10% in the following two weeks, rallied 10% above the worth stage at which the MFI14 was >92, solely to lose 20% into the finish of 2019. The web acquire in a single yr: -12%.

Figure 3. Daily Cumulative NYSE A/D line and the Bullish Percent Index for the S&P500

NYSE A/D line and the Bullish Percent Index for the S&P500NYSE A/D line and the Bullish Percent Index for the S&P500

Lastly, a take a look at a number of market breadth indicators may assist us assess if the present rally has legs or not. Here we take a look at the cumulative A/D line for the broader NYSE index (NYAD) and the Bullish Percent Index for the S&P500 (BPI-SPX). The former tells us what number of particular person shares that make up the index are on a bullish sign, whereas the latter tells us if the indexes are rising on extra advancing points or not.

Since late January, the NYAD has been making decrease highs and decrease lows. This means the inventory markets are advancing whereas extra particular person shares are beginning to decline. Besides, the BPI-SPX already topped in December final yr gave a promote sign in mid-January and has continued to make decrease lows and decrease highs since.

However, the indexes have marched larger. This means the inventory markets are advancing whereas fewer particular person shares’ charts are Bullish.

Thus, whereas we’re conscious that

  1. worth is all the time the ultimate arbiter, and
  2. (destructive) divergence is just divergence till it isn’t,

based mostly on the EWP, Fibonacci-extension ranges, extraordinarily overbought circumstances, and presently deteriorating underlying market breadth, the almost certainly conclusion is {that a} vital market high is brewing.

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