With the U.S. stock market unable to break through the 2,507-2,510 resistance region on the SP 500, investors have to make a decision this week about this inflection point.
In last week’s article, we were targeting the 2,507-2,510 SP 500
region for the market to make a decision as to whether it wants to attack 2,600 sooner rather than later. And the market did not wait terribly long to begin to test that resistance. Last Monday, the market gapped up directly to the 2,507 region, and spent the entire week probing the resistance region between 2,507 and 2,510. Yet, during the entire week, it was not able to overcome that resistance.
The other side of the market is represented by the 2,480 support region, which has not been breached either. We would need to see a strong break down below that support to suggest we are heading back down toward 2,400 sooner rather than later.
So it seems the market has a decision to make in the coming week. Should we see the market break out strongly through the 2,511 level, and follow through over 2,520 on the SP 500, then support is moved up to the 2,498 region, as presented in the more immediate bullish pattern on the daily chart. As long as a breakout holds that support region on an expected test of that support in wave (iv) of iii (as shown on the daily chart), then the market can continue to subdivide in a series of 4th and 5th waves up toward the 2,575 region.
But even in the more immediate bullish case, a rally up toward the 2,575 SP 500 region would still be resolved in a larger degree wave (4) pullback toward 2,350-2,400, but much later this year, or even into early 2018. Moreover, a more immediate bullish resolution toward 2,575 would open the chart up to potentially target the 2,800 region in wave (5) late into 2018, or even into early 2019.
However, despite the more immediate bullish potential, my “preference” still resides with a resolution down toward the 2,400 SP 500 region sooner rather than later. The larger-degree patterns really would form in a more standard fashion with a breakdown below 2,480 in the coming week. Yet, should the bulls be able to strongly take out the 2,511 region, without breaking back down below 2,498, then the bulls retain full control, with the potential to approach the 2,600 region in the coming month or two.
See charts illustrating the wave counts on the SP 500.
The writer has no holdings in any securities mentioned.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex, and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.