Charts on S&P 500 (INX): Market Is So Full

They say that trees do not grow to the sky, and neither do markets.  While this market has now stretched just beyond the ideal target box we provided for this [a] wave rally months ago, and while I still think we have higher to go before another major top is struck, I still expect a pullback to be seen this month.

Ideally, I still think we are topping out in an [a] wave off the December lows.  That still means I want to see a [b] wave pullback in the coming weeks, pointing us down to the 2490-2580SPX region, which would develop as an a-b-c structure, as shown on the 5-minute chart.  Yet, I still have no confirmed top in place.  Rather, we need to break below 2675SPX to suggest that the last rally has completed, and that a larger degree pullback is underway.

As I have highlighted in my prior writings, standard expectations for an [a] wave rally off a low point us to the .382 retracement of the prior decline, and sometimes even the .500 retracement.  While the IWM is now at the .500 retracement region, the SPX has taken us up to the .618 retracement.  While my expectation for many months (for which I was preparing you even before we bottomed in the 2350SPX region) was that the market will rally back up towards at least the 2800SPX region, I did not initially expect the [a] wave to be able to take us up towards the .618 retracement, since it is not terribly common.

While the market sometimes moves beyond standard expectations, these standard expectations are what assist us with our analysis of risk versus reward in the market.  For example, these same standards suggested to me that I move to cash once the market broke down below the 2880SPX region.  The great majority of the time, the market respects the standards of analysis we apply.  That is why they are considered standards.

So, at this point in time, these standards would suggest that a retracement should be seen in the very near term.  But, until the market breaks down below 2675SPX, we have no immediate indications that the potential [b] wave retracement has begun.

Due to the strength of this rally, many have assumed that the bull market has returned, and we are now on our way to 3200+ for the 5th wave we are expecting in the coming years.  And, I warned you that this would likely occur, due to my expectations for a large b-wave rally.  But, I have nothing to suggest that the market has begun its rally to 3200SPX+, which we still expect to occur in the coming years.

In fact, I have conferred again with our StockWaves analysts at Elliottwavetrader.net, and not only do they confirm that the majority of the stocks in the market support that this is an [a] wave rally within the larger b-wave we are tracking, some have even attained levels which can consider all of their b-waves as completed.  For this reason, I have added a little more detail to my yellow alternative count on my daily and 60-minute charts, which would classify this rally as a 4th wave in an ending diagonal for the c-wave of wave 4 in the SPX.  This alternative count in the SPX would align with those minority of stocks which may have completed their respective b-wave highs.  Again, this is simply my alternative count at this point, as the greater majority of stocks still suggest this is just the [a] wave of a larger degree b-wave rally.

As far as those viewing all of the larger degree 4th wave completed, at this time, the market has only rallied 3 waves off the low, and would need to maintain over 2600SPX for a 4th wave pullback, followed by a 5th wave to levels over 2745SPX to suggest we have a 5 wave rally off the December lows.  And, until we see that pattern, I cannot even consider an alternative count that the larger degree 4th wave has completed.  And, should that develop, it would still provide us with a larger degree 2nd wave pullback to the 2500-2600 region, and point this market up to levels exceeding 3400SPX before this 5th wave completes.  For this reason, I am in no rush to adopt this alternative, which, to me, is a lower level probability right now, the reasons for which I have outlined in evening and weekend updates to our members over the last month.

In conclusion, much of what I have reviewed still suggest this is a very extended [a] wave off the December 2018 lows.  Moreover, I still think we can head higher in the coming months before we potentially see lower lows to complete this larger degree 4th wave off the 2009 lows.  And, lastly, I still expect that this market has one more multi-year rally to be seen to levels exceeding 3200SPX before we enter a multi-year bear market, which may even turn out to be a multi-decade bear market, as I have also outlined many times in the past.

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Avi Gilburt is founder of ElliottWaveTrader.net.