Charts on S&P (INX) - Market Is At Another Inflection Point

Back in the fall of 2018, when I was warning about the larger degree 20-30% correction which I foresaw in the market, I also warned that within that “correction” the market can even make a new all-time high after the initial a-wave decline, and it may still do so, with the upcoming week giving us indications regarding those probabilities. Allow me to explain.

Over the last few weeks, as we have been approaching my target for this b-wave rally, my expectation was that we were going to be topping out in the 2865-2885SPX region and turning down for the c-wave.   However, the manner in which we have rallied to this target suggests that this rally may have more legs to it than I initially expected in February when I set this target.

But, if we go back before February, I had maintained some expectation that this b-wave rally could even make a higher high in the 3011-3040SPX region.   You see, the wave 3 which topped in September of 2018 had an ideal target of 3011.  And, when a 3rd wave fails to strike its ideal target (we came up about 70 points short), we oftentimes see the b-wave of the ensuing correction strike the target before turning down in the c-wave of that correction.   That was the reasoning I had many months ago about why this b-wave could have potential to rally to that higher target.

However, due to the overlapping structure we saw in February, along with the lack of pullback, I modified my target for this b-wave down to the 2865-85SPX region.  Yet, as I highlighted in my Wednesday update, the manner in which we have now approached this modified target has developed a structure which can still take us up to the 3011-40SPX region.  So, unfortunately, I have to abide by the words purportedly stated by John Maynard Keynes when he noted: “When my information changes, I alter my conclusions. What do you do, sir?”  So, I apologize for the revised perspective I posted earlier this week, but I wanted to introduce it before it happened rather than after the fact.

So, the structure has now opened the door back towards my initial thoughts of many months ago that this b-wave rally may still attempt to strike the levels which the 3rd wave failed to strike within the 3011-40SPX region.  But, the market has to break out through the 2915SPX level to suggest this is the case.

But, please make no mistake about the fact that we are now within a region that can turn us down strongly for a b-wave top.  We have enough waves in place to consider the b-wave rally we have been tracking as truly completed.  So, yes, we have reached another inflection point for the market.  But, the market will have to break down below 2845SPX to begin to signal we have finally completed this 3 month long b-wave rally.

In summary, the market is now at an inflection point.  As long as it remains below 2915SPX, we have enough of a structure in place to have us topped out in a b-wave rally.  And, should we break down below 2845SPX, that will start turning the probabilities back towards the potential that the b-wave has completed, and we will begin to track the set up that can take us down as low as the 2200SPX in the coming months.  However, if the market is able to push through the 2915SPX region, then it suggests that we can next rally as high as the 3011-3040SPX region, and I believe the small caps will lead that segment of the rally. 

Lastly, I want to reiterate that I think that this rally is still primarily a b-wave for all the same reasons I have outlined many times before.  In fact, Bayesian probabilities are now calculated for it to be a 75% likelihood that this rally is a b-wave, even if we do go higher.  That means whether it happens here or whether it happens from a higher level, I think the bigger patterns suggest that we can still revisit the 2018 lows, and may even break below them before the next major bull phase takes us to 3500-4000 into the 2022/23 time frame.  And, at this time, this will seem like an impossibility to most.  Well, I heard the same thing when I noted we can see a 20% drop from the 2900 region last year.

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Avi Gilburt is founder of ElliottWaveTrader.net.