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For years, I have been strongly urging those willing to listen that the stock market was setting up to exceed 2,500 in the S&P 500 Index before a major correction takes hold.
So far, the market has been playing out in an almost textbook fashion. The only variations we have seen are in the pullbacks in this rally since February 2016, and they have been shallow. We may be seeing yet another shallow pullback in the current segment of the rally as well.
It does look as though the S&P 500 may have one more smaller push lower before it has completed this segment of the pullback.
After striking our longer-term target for this segment of the bull run that we were expecting in early November 2016, we have been preparing for a pullback. For the past few weeks, we have been looking for the S&P 500 SPX, -0.25% to drop to the 2,335 region. The market obliged last week, and now we may be setting up for a reversal.
As we have been saying for a few weeks, our ideal structure was looking for the S&P 500 to drop down to the 2,335 region. Our primary expectation was that this would only be an a-wave in a more complex 4th wave consolidation. However, as we can see from the daily chart, the moving average convergence-divergence (MACD) has now fallen back to the trend line, and the correction may have been completed, as noted by my alternative yellow count on the charts. The MACD can now support another rally to 2,500. Yet, I would prefer that the next rally only provide us with a b-wave higher, setting up a larger correction for this 4th wave consolidation.
In the smaller degree structure, it does look as though the S&P 500 may have one more smaller push lower before it has completed this segment of the pullback. But, as long as we remain over the 2,320 region, I believe we are setting up for a reversal.
Due to the pullback in the MACD on the daily chart, I now question whether all of the 4th wave pullback has been completed, or if just the a-wave of the a-b-c structure for this 4th wave has been completed. Either way, I think a rally will probably take hold in the coming week, assuming we do not break below 2,320. The structure of that rally will likely tell us if wave (iv) is done, or if we will be mired in this correction for the next month or so, with the potential to test the 2,275-2,300 region in April.
In conclusion, I want to remind you that this is still a bull market, as our long-term upside structure has not yet been completed. And, based upon that perspective, I am looking for a rally to take us to the 2,500 region on the S&P 500 by summer. However, the next week or so should provide us with some insight as to whether we begin that rally to 2,500 sooner rather than later. Either way, once wave (iv) completes, wave (v) should provide us with a 200-point rally to the 2,500 region.
See charts illustrating the wave counts on the S&P 500.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader, 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.
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