Sentiment Speaks: Will The Next CPI Report Trigger A Rally To 4300 Or A Crash?

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
February 14, 2023

Over the last 5 months since the October 13 low, the market has reacted in surprising fashion to many of the CPI and PPI reports. For example, while the October 13 CPI published report was expected to cause a 5% decline in the market, the market actually struck a major bottom and began a 20% rally off that low.

And, this was not the only time over the last 5 months that market participants were surprised by the reaction after a report. Moreover, these surprises came to the upside and the downside.

I have outlined these instances in this prior article:  Sentiment Speaks: The Market Fleeced You Again - And, You Probably Don't Even Realize It

So, what is the most important takeaway from these reports? Is it that we should be looking a lot closer at the substance of these reports? Absolutely not.

I have noted many times that, while news and economic reports can act as a catalyst for a market move, the substance of that news or economic report is not always going to be indicative of the direction for the market move. And, the last 5 months have provided us with very stark examples, as outlined above. So, if you have been trying to discern market moves based upon these reports, you have likely been terribly whipsawed many times over. But, I can assure you that you have not been alone, as most analysts and market participants have been as well.

Yet, since we bottomed where we expected in October of 2022, I have been continually outlining my expectation for us to rally towards the 4300SPX region off that low before the market makes a major decision after that rally completes. And, we are just about there despite most market participants and analysts not expecting it based upon their views of the various reports and news announced over these last 5 months.

As far as current market expectations, the market has been quite erratic over the last week. While we have been attempting to track a structure that will next attack the 4300SPX region, the market took a very unusual path last week to the downside. While it spiked and reversed around the support region I outlined last weekend, it certainly did not provide us with a clear or easy path.

Rather, from an Elliott Wave perspective, it seemed to tell us that the market is attempting to take an overlapping and complex path towards the 4300SPX region within an ending diagonal structure. And, these structures are not anywhere near as easy to trade as standard impulsive structures that we track.

So, I am going to make this relatively easy for the coming week. Our support is in the 3980-4025SPX region. As long as the market respects that support, my next ideal upside target is in the 4290-4328SPX region and the CPI may act as a catalyst to begin the rally towards that region (again, assuming we maintain the support noted above).

As one of our members noted just this past week:

“I mean am I the only one who's STILL amazed at how accurate Avi/Mike are with laying out the paths/points of resistance? These blue boxes are something else. It's gotten to the point where we just expect it and think it's normal - but it's insane and we're lucky to say the least.”

But, now I am going to warn you. The market has become much more risky. While my expectation was for us to rally to at least the 4300SPX region off the 3491SPX low struck in March, we seem to be completing that rally with a very unreliable and volatile structure. Moreover, this type of structure can point us back down to the 3800SPX region quite quickly once we complete this upside move off the December low. You see, if we are indeed completing an ending diagonal structure in the coming weeks (assuming we hold the support noted above), then the reversal seen after completion is usually quite violent. Moreover, a traditional target after completion is the region from which the diagonal originated, which is the 3800SPX region. And, again, it traditionally moves back to that target in very rapid fashion.

Furthermore, the structure of that drop will likely tell us if we can expect further highs in 2023, with the potential to even reach our old 5150-5500SPX region ideal target for the bull market off the 2020 low. You see, if the market drop back to the 3800SPX region is corrective in nature, then it opens the door again to being able to reach our ideal target zone for the bull market structure off the 2020 low. However, if the structure of the next drop towards 3800 is clearly impulsive in nature, then it suggests that we are likely heading down to the 2700-2900SPX region later this year. So, clearly, the action seen over the coming months is likely going to tell us how the rest of 2023 is going to take shape.

I know many of you have your biases as to what you “believe” is going to happen. Yet, these same biases are what causes most of you to remain on the wrong side of the market for too long and incur significant losses. Rather, my suggestion to you is to retain an open mind and view the market with objectivity. It will tell us how the rest of the year will likely take shape, and you should listen to the messages it provides to us rather than attempt to impose your fundamental bias upon the market.

Lastly, before you choose to post a comment below, please consider this blog post I made a few weeks ago.

Have a great week.

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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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