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Sentiment Speaks: Are We Ready To Rally To 3900+SPX?

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
October 27, 2022

First published on Seeking Alpha on Sunday October 23: 

I know that many of you trade “correlations.” So, for those that do not already know my perspective on it, allow me to repost something I wrote some time ago:

“What a correlation represents is when two markets are trading in opposite directions or in the same direction for a period of time.

Now, since we understand that each market trades in its own pattern, what correlations really mean is that these markets are trading for a period of time within those relative directions. So, it may mean that one market is trading higher in a 3rd wave whereas the other is trading higher in a 5th wave. Or maybe one is trading down in a c-wave whereas the other is trading higher in a 3rd wave . . etc.

Unless you understand how to analyze each chart on its own, there is no way you will know when a seeming correlation will break down – and they almost always do.”

This now brings me to all the posts I hear about how the dollar rise is causing the market to drop. Yet, are we to ignore that the dollar has been in a long term uptrend alongside the S&P500 since 2008/09 when both bottomed? Do we simply close our eyes to or ignore certain facts when they do not fit the narrative we are trying to proffer? Or, should we approach everything with an intellectually honest and consistent perspective? When you want to proffer a theory, I strongly urge you to consider all the facts. And, when there are some facts that do not fit within your “theory,” then you must be honest enough to abandon that theory.

Again, understanding where each chart stands within their own individual wave structure will go a long way to not only making these seeming correlations quite worthless, but it can also direct you as to when those seemingly correlations will likely break down.

Another example is when I hear the discussion about rising bond yields causing the market to decline this year. Well, we have had many other periods of time when yields were rising, and yet the market was rising at the same time. Moreover, has anyone bothered to realize that the market is up 7% since it struck a low on October 13 despite rates having continued higher quite strongly since that time? In fact, this was the best week for the market since June, yet it was also one of the worst weeks for bonds during that same period. So, please spare me the arguments about the speed of the move in bonds is what causes the market to drop.

Now, let’s move into my market perspective. For those that have been asking me, I still have major issues with calling the long-term top as having been struck in the S&P500, and I have explained my reasoning in great detail to the members of ElliottWaveTrader. But, clearly, due to the depth of the drop in 2022, which was below my original expectations that I outlined at the end of 2021 for the pullback I expected into 2022, it must be something I have to consider. Therefore, the nature of the current rally will likely tell me a lot.

Thus far, the bulls have been doing exactly what they need to be doing to keep the pressure to the upside off the bottom in the market that we expected on October 13. If you remember from my last Sentiment Speaks article, I noted the following about the bottom struck on that day:

“In fact, before the market opened on Thursday morning, and as it was hovering near the recent lows, I sent out an alert to our members at 8:56AM, noting my expectations for a bottom being struck and noting that “[t]his should now be the selling climax that completes the downside structure.” The market bottomed within half hour of my alert.”

Since that bottom, the market has been playing out in an almost textbook fashion to the upside. Once we completed the trading day on that Thursday of October 13, I outlined my expectations for a pullback in the market. And, on Friday, we saw the pullback that we were expecting. But, while most were thinking that the pullback was going to point us to lower lows, we outlined how the market was likely bottoming near the .618 retracement of the rally off the Thursday low, which should lead us to rally in the following week. And, that is exactly what the market presented to us on Monday and Tuesday of this past week.

While I was out due to a religious holiday on those two days, Garrett Patten, who is one of our lead analysts in our StockWaves service, filled in for me and outlined his expectation for another pullback to be seen after the Tuesday morning spike up at the market open. And, we spent the rest of the week within that pullback.

On Friday morning, I posted the following alert to members at 8:43AM, just as the market was hovering at its key smaller degree support we calculated and outlined in the futures:

“It's pretty simple this morning. We have to find a bottom near the open and begin to rally strongly, or we are heading down to the b-wave target.”

Within minutes of my post, the market began the rally we saw on Friday. Needless to say, later that day, our members voiced their opinions again:

“Avi your MPW allows me to see the market in a whole new light. It’s like everything slows down, and you have the ability to make decisions that up until now were not available to me. Your system lets me know quickly that my bias/direction is incorrect, allowing to make adjustments saving me thousands. This morning it allowed me to take a 20% profit. Thank you for your commitment as well, your updates are always so timely.”

“Avi your advice is supernatural. Made a fortune today based entirely on your primary goals and advice. Left to my own devices I would have panicked, exited and lost ALOT of money.”

Again, I have noted this many times before. I will not always be able to be right 100% of the time. In fact, this year represents some of my wrong calls, as I clearly did not expect the market to drop this deep when I was preparing our members at the end of 2021 for a pullback into 2022. But, nevertheless, those that have followed us through the years have all noted that we are right a heck of a lot more than we are wrong. Moreover, I provide clear parameters as to when I am wrong, and when we have to adjust our expectations, as noted within the member quote above.

Now, to keep things relatively simple, I will say that I think we are heading to the 3900-4000 region next. The only question is the depth of the next pullback we see. As long as we remain over the low struck on Friday, then I think we are heading to the 4000SPX region within the coming two weeks or so in what can be a very strong rally. Moreover, if we follow through on that structure, I can still maintain the potential for the market to head to new all-time market highs.

However, if we break below the Friday low, then I would still maintain a primary expectation that the market can rally to 3900+ in the coming weeks. But it would make me question the potential of a new all-time high, and may make me consider that any rally we see which can take us back up to the 4100-4500SPX region would only be a corrective rally that would not make a new all-time high. I am not going to go into the reasoning for this perspective in a public article, but if you are interested in understanding the “why,” feel free to join us at ElliottWaveTrader for more detail of my analysis.

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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].


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