I Guess The Market Does Not Fear Covid - So Should You?

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
July 26, 2021

You see, the market saw a nice drop on Monday. And, the news media was at the forefront "explaining" how the market fears regarding the Delta variant of Covid is what caused the decline, and would likely take it much lower. It made me wonder if they polled all the market participants to come up with that reason for the decline, or if they simply made it up as they go?

Well, I think it is quite clear that they simply made it up as they go, which is what they always do. And, investors were quite eager to foolishly adopt their reasoning as usual. Did you?

At some point, investors have to begin thinking for themselves and ignore what they are fed about the market (pun intended). Most of the reasons we believe the markets move are based upon pure fallacy. Those that propagate those fallacies are never burdened by the actual facts. Rather, whatever the news of the day seems to fit the narrative of the market direction is utilized as a reason for a market move, even if it is wholly untrue.

If the market truly dropped on Monday because of fears of the Covid variant, did we find a cure for the Covid variant on Tuesday to allow the market to rally right back to where we began, and even on to new all-time highs in the S&P500 later that week? Yet, if the fears of Covid caused such a strong decline on Monday, would that not be the appropriate reason to cause an equally powerful rally in the opposite direction? Oddly enough, I do not find any news supporting such a premise.

This brings me to another pet peeve of mine. Many of you read my articles with your own bent as to what you believe the market is going to do. So, you overlay your perspective upon mine and interpret what I say to work within your perspective.

I am sorry to tell you that this is absolutely the wrong way to approach my analysis. My analysis is objectively based upon a methodology directed through Fibonacci mathematics, which attempts to track market sentiment. So, when I provide you my analysis, please do not fit that into the box of your own thinking. These articles are not meant for confirmation bias.

As an example, last week I noted that a break of the 4289SPX region would open the door to a pullback that can target the 4165SPX region before we rally to 4600SPX. But, I also noted that it would mean that the market can be capped this summer in the 4390-4440SPX region.

Now, if you view my analysis very simplistically, as some clearly did based upon some of the comments posted, you thought that a break of 4289SPX was going to take us directly to the 4165SPX region. But, that is NOT what I said, nor at all what I expected.

I said a break of 4289SPX support can cap the market at 4390-4440SPX, which, if held, can lead us back down to the 4165SPX region. In other words, simply because we broke below 4289SPX did not mean we were going to drop directly to the 4165SPX region. Yet, many of you wrongly assumed that is what I said.

If that is what you did based upon my analysis, then you were simply attempting to apply a non-linear analysis into your linear expectation. And, that is not how I work. Also, consider why I would say that the market can be capped up to the 4440SPX region even if we break below 4289SPX when we did not yet hit that level? The point is that I still saw strong potential to strike the 4440SPX region even if we broke below 4289SPX, but there was also strong potential for the market to be capped at that resistance if we broke below 4289SPX first.

In fact, I outlined to the members of ElliottWaveTrader.net last weekend (even before we broke 4289SPX support) that if we broke below 4289SPX, I saw strong potential to rally back to the 4440SPX region anyway, even if we were going to drop back to the 4165SPX region thereafter. So, I outlined in my public article last week that there is strong potential that the break of 4289SPX would warn that the market can be capped this summer by the 4440SPX resistance region. Yet, many ignored that part of my article, and assumed we would drop directly to 4165SPX.

While my public articles are meant to give you a general flavor as to my overall expectations, the specific path as to how I see the market taking shape is something I have to leave for the members of my services. So, please maintain that understanding when you read my articles. Again, please do not assume I am presenting a linear view when you read my analysis, as it is based upon a non-linear mathematically based methodology.

I am also now forewarning you that I am about to present two potential paths for the market to take this summer, but I am also going to provide you with parameters as to which one is more likely. So, if you are one-dimensional in your view of how markets progress, and you view my analysis as only claiming the market is going to go up or down, then please stop reading here as this will be too complex for you.

As I outlined to our members on Monday as we were hitting the lows, I expected that we would rally back to AT LEAST the 4360SPX region, with strong potential to continue up towards the 4440SPX region for a test of that resistance. And, this is completely within the parameters I laid out within my last public article. Yet, I did not lay out these specifics in my public article as that would not be fair to the members of ElliottWaveTrader.net. You can see the visual representation of the analysis that I presented to our members as we were striking the lows on Monday in this chart, warning them of strong potential to now rally to the 4440SPX region:

I also outlined in my updates earlier this week that the manner in which we rally back up towards the 4360SPX region will tell us if we have stronger potential to head to the 4440SPX ideal target. And, by mid-week, the market made it clear that we were likely heading towards that higher target.

While my preference remains to drop to the 4165SPX region after we complete this rally off last Monday's low, I am going to need strong evidence to make that a much higher probability assumption once we top out in the coming week. But, again, for now it remains my preference.

You see, the market structure is a bit more complex than I prefer due to the overlapping wave structure we have seen since May. This is what caused me to correctly warn about higher than usual volatility at that time, but with an upward bias. And, that is what we have been experiencing since that time.

In the bigger picture, as we came into 2021, the market was in the 3750SPX region. At the time, I was noting that I expected at least a 20% rally in 2021, with a minimum target in the 4600SPX region. As we stand today, I still maintain that perspective, and we have now almost reached that 20% mark for 2021.

But, the structure of the market in May and June has clouded the smaller degree wave count, and has yet to resolve if we go directly towards my minimum 2021 target region in the summer, or if we get that pullback to 4165SPX before the rally towards that region begins.

The smaller degree pattern I am tracking with the break of 4289SPX last week, as I outlined to our members, suggests we can rally up towards the 4440SPX region, and from there return down to the 4165SP region. But, if the market only pulls back correctively from the 4440SPX region and then breaks back out through the 4440SPX region, then it would suggest we will attack the 4550-4600SPX region sooner rather than later. And, from there, we would likely see the 200-300 point pullback I expect this year.

There are times I can provide guidance with a high probability expectation when the market provides that to us based upon the price structure. But, there is a minority of the time when the price structure is a bit more clouded than I prefer, so I have to allow the market to guide us more so with its near term direction, as is the case now. Yet, I can still provide general guidelines to follow as it relates to the overall market structure, which I do herein.

Again, while the bigger picture is still pointing towards the 4600SPX region this year, the smaller degree is not wholly clear if we get there directly from here, or if we can still see that loop down to 4165SPX before the rally to 4600+ gets underway. And, the 4440SPX region is going to be our main guiding resistance region. For now, it still remains my preference to drop back to the 4165SPX region from the 4440SPX region. But, I will be watching the market very carefully to see if I need to adjust my near term perspective.

In summary, my expectations for a 200-300 point pullback to be seen before we are ready to rally through 4600SPX is still very much intact. If we hold the 4440SPX resistance region in the coming two weeks, then we are seeing that pullback this summer, with an ideal target in the 4165SPX region. And, that is a buying opportunity, as the market will then be primed to rally through the 4600SPX region into later this year and into early 2022.

However, if the market is able to break out through the 4440SPX region this summer, as outlined above, then that 200-300 point decline will likely occur from the 4550-4600SPX region for a buying opportunity which will then set us up to rally through the 4600SPX region late this year and into the first quarter of 2022. So, again, it is simply a matter of timing as to when the market is going to give us that 200-300 point pullback before we are ready to rally through the 4600SPX region.

In this article, I am attempting to distill a very complex structure to those of you that do not understand Elliott Wave analysis. So, I do apologize if I am not being as clear or as definitive as you would prefer from me. But, I can only give you what the market gives to me. And, the next week or two will solidify the pattern for us, and likely present us with a much better expectation as to how the rest of 2021 and into early 2022 can take shape.

Furthermore, no matter how you view the market fundamentally, you must respect that the price action strongly supports the fact that we are in a bull market. Moreover, I expect this bull market to run much higher in the coming year or two, as I reiterated my ideal target of 6000SPX even when we were at the depths of despair down in the 2200SPX region back in March of 2020. And, in bull markets, keep in mind that surprises usually come to the upside.

So, while I still maintain an expectation for downside resolution this summer, I am going to be very cautious regarding this expectation in the coming weeks, and allow the market to confirm that my expectation has risen in probability with a 5-wave decline off a high I think we can strike this week.

Personally, I do not aggressively trade downside during a bull market, especially during a 3rd wave rally. Rather, I raise cash when a stock I own approaches a major target our StockWaves analysts set for that stock, and I then rotate that cash into a stock that has greater potential for further gains. And, at no time am I less than 90% committed within a bull market run, such as the one we are currently within.

As we move through the next two weeks, I think the market will likely solidify exactly where within this wave pattern we currently reside, which will allow me greater clarity as to where I want to be raising further cash, and when I want to be rotating that cash into other stocks or ETFs (as there are two ETFs which I have been outlining to our members which I see as having a potential to outperform in the coming months and into 2022).

If you would prefer greater detail of our analysis on a daily basis as we track through this more convoluted wave structure, you can feel free to join us for a free trial at ElliottWaveTrader.net. My current assumption is that this pattern will likely solidify in the coming two weeks.

I would take this opportunity to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And, if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here is the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.

As I have said many times before, this is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draws up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the general prepares for battle. We prepare for market battle in the same manner.

So, while I will never be able to tell you with certainty how the market will move in the coming weeks, months, and years, I present you with enough information to know where my primary perspective is wrong so that you can adjust in order to take account for the alternative situation. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which at this time is pointing us to much higher levels in the coming years.

By now, I hope you recognize the difference in our analysis approach, other than the accuracy thereof. We strive to view the market, and utilize our mathematically based methodology, in the most objective fashion as possible, no matter how crazy it may sound. Moreover, it provides us with objective levels for targets and invalidation. So, when we are wrong in the minority of circumstances, we are able to adjust our course rather quickly, rather than fighting the market like many others you may read have been doing during this entire rally off the March 2020 lows.

So, while I hope I am helping many of you in maintaining an objective perspective within this non-linear environment we call the stock market, I want to wish you all well in your future trading and investment endeavors. As of now, I maintain my long-held expectation to see the market in the 6000SPX region in the coming years, of course, unless the market tells us otherwise. But, please approach the market with the respect that a bull market deserves, as surprises usually come to the upside, and we likely have much higher to go before this bull market ends.

Lastly, as I am hitting my 10th anniversary of writing on Seeking Alpha and other financial sites, I want to thank all of you for your support through the years. I know my methodology is not something to which many were accustomed on a fundamental analysis platform such as Seeking Alpha, but based upon the response over the last decade with over 61,000 followers, it is clear that many of you have learned something beyond fundamental analysis from me. Feel free to read the article I wrote about my path over this last decade here:

Sentiment Speaks: A Decade Of Success

Thank you all again for your support over the last decade.

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].

The average human body contains 0.2 mg of gold with the bone containing .016 ppm and the liver .0004 ppm.

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