In a push toward new highs, has the S&P tipped its hand?
* November 30, 2015
Paris sees a terrorist attack, and markets rally. Turkey shoots down a Russian plane, and the markets rally. Do you feel like you are in the Twilight Zone?
This market has frustrated anyone who has attempted to trade the short side without an appropriate setup in place. Even when the market marginally broke our 2075SPX support last week, it came roaring back and did not confirm the breakdown scenario. As I have been saying in our trading room at Elliottwavetrader.net, I have no appetite to aggressively short this market until we see a confirmed breakdown and a short setup. But that does not mean I am not going to protect my equity portfolio profits up in this region.
This week I am going to take a bigger-picture view of the S&P 500. As we are coming to the end of 2015, it has really been quite an interesting year. If you remember, we came into this year with a long bias, specifically in the Russell 2000 IWM, -0.08% But in the spring, we recognized that the market was not going to attain the ideal targets we wanted to see for 2015, and we exited our long positions in the IWM when we struck 129, which turned out to be within 10 cents of the actual high struck for the year. Now we are trying to identify how the next leg higher in the market will be taking shape.
I want to reiterate that I still believe we are in a larger-degree bull market which likely still has further to run. The most likely scenario for this market, in my humble opinion, is that we will see a rally taking us as high as 3300. The only question is how the pattern takes shape, which will then provide us with the clearer target.
Thus far, the specific setup on the intermediate-term picture has not made itself clear to me, so I will be a bit more patient and cautious until the market tips its hand. The main reason I am maintaining such patience is that the market has not yet told us that a drop to an 18-handle again has been taken off the table before we rally to 2300-plus. So, I do not want to set myself up for a large drawdown.
My main pivot for a breakout in this market is going to be the 2175SPX region. If we see a sustained breakout over that region, depending upon the setup that takes us through it, we should be looking toward regions over 2300SPX for the top of primary wave 3.
However, I am now placing an alternative count on the chart in the event we continue up to new all-time highs within the next week or so. In order to even consider this alternative count, we need to see the market attain at least the 2117-2134SPX region within the next week or two, which would then provide us with a possible truncated wave V of primary wave 3.
But there are some signs that suggest we may see a drop in the market before we are able to attain that region. So, for now, I am going to remain somewhat cautious for the month of December as long as we remain below the 2135-2175SPX resistance region.
For those of you who are highly concerned by the alternative count, please recognize that I have a hard time relying on truncated patterns (which is what the alternative count presents), as 5th waves within a primary wave 3 often see significant extensions, which has not yet been seen in this primary 3rd wave. But the fact that we are striking the 2.00 extension within this pattern does give some weight to the alternative count, which is why I do have to take it into consideration. The primary count is still expecting a bigger rally for wave V of primary wave 3, which is normally what we see within this pattern, and we do have to side with the greater probabilities.
So, for the long term, I am still quite bullish on the equity markets toward at least the year 2018, with potential to even rally as high as 3000-3300SPX approaching the year 2020. But the shorter term has still not tipped its hand. So, it would be quite prudent to protect your equity positions until we are able to generate escape velocity over 2175SPX, or until the market makes its shorter-term pattern clear, which should occur within the next month.
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