Using Elliott Wave theory to decide where the S&P will peak
With the S&P 500 holding support this past week, the market broke out through resistance and seems to have begun its next rally toward 2,800. But the bigger question still looming before us is how much higher can this rally take us? For years, we have had our sights set on the index exceeding the 3,000 region before it completes all of wave 3 off the 2009 lows. The question the market will have to answer over the next two months is whether we will top just over 3,000 or if we can set up to extend to the 3,225 region by the middle of next year. For those who have followed our work, you know we are tracking two bullish potentials at this time. They are presented in yellow and in green on these 60-minute charts of the iShares Russell 2000 ETF IWM, -0.92% and the S&P. The yellow count suggests that we are rallying now to complete wave (i) of wave (5) of wave 3 off the 2009 lows. This would have us expect a larger-degree pullback into the latter part of this summer for yellow wave (ii). Should this structure develop into the end of the summer, it would suggest the market will project to the higher 3,225 SPX target, and likely take us into the middle of 2019. However, if the market takes the more immediate green-count path, it suggests we are now within wave (iii) of an ending diagonal in the SPX, whereas the IWM presents as a standard impulsive wave structure. But, it would potentially top the S&P at the lower end of our long-term target zone for that index, a move that could even occur before the end of 2018.
So, this week, as long as we don’t see a major S&P reversal below 2,730, my expectation is that we can rally back up toward the 2,800 region to complete the a-wave of this rally off the 2,700 support region. But, overall, it would seem that August will likely usher in a pullback, the extent of which will give us strong indications as to how high and how long this current rally will take us before the 20%-30% correction we expect in 2019 will begin.