S&P 500 - Approaching critical 3678 level (bear or bull rally)
Updated
S&P is reaching its most important level of this rally. There is a high probability that all the market action from Feb to today is a large ABC corrective wave. Wave A was Feb-March. We could be seeing the conclusion of Wave B.
So why is 3678 the important number? The maximum fib extension a Wave B (in Elliott wave theory) can make off of a Wave A low is 1.236. If you look at the chart you will see this 1.236 fib number two times. First, the one the measures the March rally. Second, the one that measures the recent corrective wave off the Sept high. What is amazing to me is that both of the 1.236 levels align almost perfectly at 3678! I don't think that is a coincidence.
Watch this 3678 level and look for either a rejection or a breakout in the next week or so. * Rejection = we have a confirmed bear market rally.
* Clear breakout and retest = bull market rally. This means we are likely seeing a motive wave 5 with an upside around 4000.
Why I think this is a bear market rally.
1) You can also see the clear rising wedge pattern ending right at the 1.236(3678) level. That is a bearish pattern with a minimum expected break down to 3500 level.
2) Bear market (corrective) rallies are usually driven by a handful of companies. This was clearly the case through most of the summer with the FAANG stocks. A lot of stocks have ridden those coattails to this high, but you have companies like Tesla with a 1,200 PE ratio and Amazon at 90. Do you remember the Apple rally this summer?
3) There is a tsunami of debt, bankruptcies, foreclosures coming due to COVID. Sure, online retailers have down well and only line shopping in general has done well. However, the estimate is something like 10+% of small businesses will go out of business in the next 6-12 months. My understanding there is even more "zombie" companies.
Why I think this could be a bull market rally.
1) I have seen the S&P break to the upside in the rising wedge pattern. Note that this type of breakout has shown to have the affect of significantly increasing the eventual correction that will follow the ensuing rally (think Feb-March drop).
2) The Covid vaccine "irrational exuberance" is strong in the market. With the release just around the corner and what looks like an early release in Europe, I think the market could go exponential like we say just the other week.
3) Government stimulus can wipe away a lot of debt/bankruptcy fear. If the government can pass something in the coming week or so, then this combined with the vaccine could really rally the market.
Elliot Wave Count
With some down trends and channel
Trading Channels #1
Trading Channels #2
Some useful trend lines
Worst case scenario correction
Hope this helps. Good luck.
So why is 3678 the important number? The maximum fib extension a Wave B (in Elliott wave theory) can make off of a Wave A low is 1.236. If you look at the chart you will see this 1.236 fib number two times. First, the one the measures the March rally. Second, the one that measures the recent corrective wave off the Sept high. What is amazing to me is that both of the 1.236 levels align almost perfectly at 3678! I don't think that is a coincidence.
Watch this 3678 level and look for either a rejection or a breakout in the next week or so. * Rejection = we have a confirmed bear market rally.
* Clear breakout and retest = bull market rally. This means we are likely seeing a motive wave 5 with an upside around 4000.
Why I think this is a bear market rally.
1) You can also see the clear rising wedge pattern ending right at the 1.236(3678) level. That is a bearish pattern with a minimum expected break down to 3500 level.
2) Bear market (corrective) rallies are usually driven by a handful of companies. This was clearly the case through most of the summer with the FAANG stocks. A lot of stocks have ridden those coattails to this high, but you have companies like Tesla with a 1,200 PE ratio and Amazon at 90. Do you remember the Apple rally this summer?
3) There is a tsunami of debt, bankruptcies, foreclosures coming due to COVID. Sure, online retailers have down well and only line shopping in general has done well. However, the estimate is something like 10+% of small businesses will go out of business in the next 6-12 months. My understanding there is even more "zombie" companies.
Why I think this could be a bull market rally.
1) I have seen the S&P break to the upside in the rising wedge pattern. Note that this type of breakout has shown to have the affect of significantly increasing the eventual correction that will follow the ensuing rally (think Feb-March drop).
2) The Covid vaccine "irrational exuberance" is strong in the market. With the release just around the corner and what looks like an early release in Europe, I think the market could go exponential like we say just the other week.
3) Government stimulus can wipe away a lot of debt/bankruptcy fear. If the government can pass something in the coming week or so, then this combined with the vaccine could really rally the market.
Elliot Wave Count
With some down trends and channel
Trading Channels #1
Trading Channels #2
Some useful trend lines
Worst case scenario correction
Hope this helps. Good luck.
Note
One more as a large up channelNote
3678.1 at around 10am. Interesting to see if it takes another run at before closing.Note
At the 4h. The RSI is close to overbought. However, if history teaches us anything about this rally, then that does not mean squat.Note
2pm and its ready to test again. Right now it is at the top of the rising wedge, close to the top edge of the regression channel, a hair under the 1.236 fib, and cRSI is overbought both on the traditional 70 level and the cyclic bounds. However, the MACD is not crossing over. End of day close above would be a very bullish sign. A gap up tomorrow morning and this is a bull rally and get ready for a massive bubble.Note
End of day and as expected a 2nd test right to the major 1.236 fib level. Could not of called it any better ;) Now lets see if we drop tomorrow or we gap above.Note
In case you are watching this idea instead of my newer one.Thursday at 11:05 at the 5m time frame. Another retest and rejection.
Note
3:43pm. Hammer timeNote
End of day. I don't know, but this looks like a setup for tomorrow to gap up. The bears came at the last second, but may be too little too late.
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