Election or not, it’s time for the bulls to step up
For those who follow Elliott Wave analysis
* November 7, 2016
For months now, we have been looking for the market to pullback toward the 2065-2090 region on the S&P 500 SPX, +2.08% Finally, the pullback has run its course and has taken us down to our target. However, for us to maintain a strong bullish bias in the larger picture, the bulls are going to have to step up in the coming week.
With the move down last week, we have just about completed a 5 wave c-wave within the 5th wave of an ending diagonal. While the final 5th wave can still extend a bit lower, I would not expect a larger downside move to occur from here if our expectations are correct. In fact, I noted last week that a break of 2030SPX and 111 in the iShares Russell 2000 ETF IWM, +2.51% would take me out of a bullish perspective on the market, and move me to neutral.
In addition to us just about completing our pattern to the downside, and many indicators moving toward their bottoming regions, some of our other analysts at Elliottwavetrader.net are seeing bottoming signs in their work as well. Our fractal quant analyst has weekly "buy" signals developing in his fractal-based algorithm. Moreover, Dr. Cari Bourette, of Markemood.net, also sees the negative sentiment that has been pushing the market lower as bottoming in the very near term.
For now, as long as the market remains below 2098SPX, we may still see some extensions a bit lower in the market. But once the market moves strongly through the 2098SPX level and is able to continue through 2125SPX, that is our initial indication that we could have a long-term low in place, and finally begin our run to 2350SPX next.
The reason I say that I want to see the market move "strongly" through those levels is because that is what is normally seen once an ending diagonal completes. An ending diagonal builds a lot of compression as the market moves back and forth within the confines of its down-trending channel. Once it completes, you usually see a violent move in the opposite direction, which takes us back to the point from which it began and it does so very quickly.
That means that once we complete this diagonal down and the market turns up strongly, it should not stop until we get back toward the 2180SPX region, which would then complete wave 1 of wave (iii). This action would confirm that the market has bottomed, and a pullback toward the 2140-2160SPX region should be bought for the impending rally taking us to 2350SPX next.
So, as the world prepares for the election of the new leader of the free world, I think it is quite clear that we should be expecting extreme volatility in the market. Our expectation is that it will be exhibited in a strong move higher, as long as we do not break below 2030SPX. However, a break down below 2030SPX would move me to the sidelines for now.
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