In retrospect, the S&P 500 once again found support on the L1 DGL (Dynamic Gann Level) projected from the Fall 2016. The advance thereafter (which came on below average Volume) brought prices to an all-time high, with the RSI-2 now reached an overbought extreme and with CCI and FCX (Copper & Gold) at the same time showing a bearish divergence. FCX has barely reacted despite the move to new highs in the S&P 500.
So the market is due for a pull-back near term, with horizontal line support down at 2405 and thereafter, first Fib. support coming in at 2391.5.
Friday’s Inside Day (the market traded within the range of the previous day) reflect indecision among traders, so any break of Thursday’s low would signal a bearish breakout from this indecision and with it, likely near term weakness coming.
The break of the early May highs, forced a revision on the wave count, with a 3-3-5 (a-b-c) Flat scenario now moved to the forefront. This looks to be of the more rare Irregular type, with the last wave c part of this Flat starting any day now.
As with wave 3’s, wave c’s are sharp in nature. With this in mind, Volatility – VIX daily has formed a double bottom at levels not seen in years and could explode higher. Taking a mid term bearish stance is supported by overbought OEX weekly momentum now entered bearish mode.
After this wave c has reached it’s termination point possibly this summer, i’ll be looking for the last (one degree higher) wave e to start to the upside, which should once again take the market to new highs, into a Fall top.
As shown on this OEX weekly chart, this wave e should in turn complete a one degree higher wave 5 from early 2016.
The S&P 500 made a retreat from the resistance target area given in the previous update, which was a pull-back deep enough to force the NYSE Summation weekly trend indicator into bearish mode, which often means mid term weakness coming.
In the very near term, since RSI-2 is getting oversold, the question now is if the first Fib. support (2375 area) is going to be tested or not, before a near term positive price reversal is seen.
But as shown on the hourly chart, there is also a quite strong horizontal line found slightly above, around the 2382 level.
Thursday’s low probably marked the end of a wave a or 1, with a wave b or 2 now likely developing.
An alternate view is that a wave c, as part of a sideways a-b-c-d-e Ascending Triangle pattern, is now taking prices lower from this week’s high, to test the lower part of this triangle.
Once this possible pattern is completed, a one degree higher wave e could take prices to all-time highs. This wave e in turn, could be the last one of an a-b-c-d-e wave 5 advance (see OEX weekly chart) from the early 2016 low.
If this scenario turns out to be the correct wave count, then i’m looking for a major top in the Fall of this year, which would also fit with seasonal weakness, often coming in this part of the year
The University of Michigan Consumer Sentiment number for May rose to 97.7, beating the 97.2 expectation and also the previous reading of 97.0.
Retail sales rose 0.4% in April, lower than the expected 0.5% rise, but positively, up from March’s anemic 0.1% increase.
The CPI – Consumer Price Index rose 0.2% in April, matching expectations and also up from March’s 0.3% decline, calming any signs of deflation, which the Fed has been hoping for.
An Interview with Robert Prechter About Elliott Waves and His New Book is available here.
As better seen on this S&P 500 hourly chart a text book five wave structure from the April low is likely coming to an end, early to mid next week. This last wave v could go for a test of the March high or even go slightly above. Friday’s positive close right below the March high, came on well below average Volume, reflecting a lack of institutional participation.
This view about a short term top coming, is supported by bearish divergences now showing up in indicators like A/D daily, 21 EMA McClellan and the NYSE Summation Index trend indicator, which is currently holding on to it’s bearish mode, despite the higher high in prices.
Even the FCX (Copper & Gold) vs. the S&P 500 is flashing a strong warning, with it’s lower low compared to the higher high in prices.
And check out Sentiment, it’s now breaking below trendline support, despite the higher high in prices. So something is surely brewing in the market.
RSI-2 has reached an overbought extreme so at least a very near term pull-back could start early next week. OEX daily momentum is also getting quite overbought.
Whether this five wave structure from the April low is the first impulse leg of a one degree higher wave 3 underway to the upside or part of a full wave 5 from the March low, remains to be seen.
If a full wave 5 is coming to an end next week, this could in turn complete a one degree higher wave C from the Dec. 2016 low, which in turn could complete a larger degree wave 5 from the early 2016 low, as this OEX weekly chart shows. If this turns out to be correct, a deeper market correction could be the outcome.
The more bullish scenario could take the market to all-time highs, possibly going into a Fall 2017 major top.