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With Bullish Wedge On S&P 500 Completed, 4600+ Target On Track

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Last week, when most traders, investors, and market pundits were doing the chicks and selling the doom and gloom, I used objective analysis of charts and data to conclude that the upswing — not the crashing — was the best way to go what might happen. Look. i.e., I found:

A (bullish) falling wedge is forming; prices are in positive divergence from multiple technical indicators; sentiment is highly bearish; although the index has only made a modest 13% correction; seasonality points to a base low around mid-March.

Providing all of these facts tells me that the weight of evidence points to higher prices, not lower prices, and that a rally to SPX 4600+ will be in order.

A week later, the index is already trading at SPX 4400 as it broke out of the wedge yesterday. Again: objective analysis 1, sentiment and opinion 0.

Figure 1. S&P 500 daily chart with technical patterns and indicators:

SPX 4600 Next, a pullback, then a rebound?

The 50-day and 200-day simple moving averages (SMA) at SPX 4437 and SPX 4470, respectively, should provide some resistance, but based on my Elliott Wave Principle (EWP) work, I expect the stock market to continue bottoming and is now Five waves for a breakdown bounce to SPX 5500-6000. That said, the Feb. 24 low was the SPX’s fourth wave low, and now the fifth wave is underway. Based on the available data, I expect the first wave of wave 5 to peak near SPX 4600. The second wave should be a correction of several hundred pips a few days before wave iii of 5 targets, ideally SPX 5100+/-100.

Bottom line: Last week, when the S&P 500 was trading around 4200, I found the index to be in a bullish pattern known in EWP terminology as a falling wedge or ending diagonal C wave. This model is expected to move towards the SPX 4600+. Four trading days later, SPX is trading at 4,400, up nearly 5%, while almost everyone has joined the bearish bandwagon. Therefore, I still expect the index to top out at 4600+/-100, then pull back around 4400+/-100, and then bounce back to SPX5100+/-100. The devil is still in the exact details, but I don’t care too much about those. I prefer to focus on forests rather than trees. Ultimately, the smelting of SPX 5500-6000 should proceed as expected.

In November, I’m looking for a 10-15% correction. Look.

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