S&P 500: Rally to 4400 Should Be Underway
Dr. Arnout ter Schure | Jan 27, 2023 03:55
As the S&P 500 (SPX) continues to move along our primary expectation, we continue to keep an eye on the $4400 target. Namely, last week, see here, as the index had just bottomed, we did not have enough price data available yet to elucidate if:
"[the] low at $3884, which is the 50% retrace of red W-i, [was] technically enough to consider the correction complete."
As such, we concluded last week
"We cannot yet dismiss red W-ii becomes more pronounced and subdivided. It can be in green W-b to around $3950+/-25 before green W-c down to $3820-50 takes hold. But, if the index closes above this week's high, then red W-iii is essentially confirmed, barring an irregular flat W-ii. "
Still, we "prefer[ed] to look higher short- to intermediate-term. Once SPX4300+ is reached, we will become much more cautious in anticipation of the blue C wave."
Less than a week later, the index is trading 100p higher, closing above last week's high. Thus our primary expectation, based on the Elliott Wave Principle (EWP) , for higher prices was correct, and the rally to SPX4300+ should be underway. See the road map in figure 1 below.
The chart above contains a lot of information, so let us focus on the main points:
- The S&P500 corrected for blue Wave-A (W-A) from the January 2022 all-time high (ATH) into the October low. Blue W-B, a counter-trend rally, has been our primary focus since October 17 (see here). Besides, B-waves tend to typically retrace 62-76% of the initial A wave. That gives us a (blue) target zone of SPX4310-4505.
- B-waves comprise three waves: black (major) W-a, b, and c. Wave-c of W-B should now be underway and subdivide into five smaller waves. Red W-i, ii, iii, iv, and v. Of these red waves, W-iii is now underway. It, in turn, also subdivides into five smaller waves: green W-1, 2, 3, 4, and 5. Lastly, since financial markets are fractal, green W-3 is likely underway and will subdivide into five smaller waves: grey W-i, ii, iii, iv, and v.
- From the EWP, we know that c-waves within a corrective B-wave typically equal the length of W-a or up to 1.618x W-a. That gives us a (black) target zone of SPX 4375-4750. And the 5th wave typically reaches the 200% extension of the 1st wave, measured from the 2nd wave low. Thus, red W-v of black W-c should ideally target $4395+/-5.
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Combining these three facts, we have a confluence of three different wave degrees: SPX4310-4505, SPX4375-4750, and SPX4395+/-5. Thus SPX4300-4400 should be our primary focus. Currently, the index should be in grey W-ii of green W-3 of red-W-iii of black W-c of blue W-B. Quite the mouthful, but in other words, the index makes higher highs and lower lows. That is a Bullish sequence.
Besides, the index broke out above its 200-day simple moving average (solid red line in Figure 1) and above the trendline that has held all upside in check between the ATH and mid-January. Both are significant developments, Bullish until proven otherwise. What can that 'otherwise' be? A break below yesterday's low for starters, followed by a break below last week's low. Until that happens, we continue to see no reason for this Bull run we have been tracking since mid-October not to unfold.
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