S&P 500

Summary

Published 19th June 2018 & amended 17th July 2018

The S&P 500 is likely to hit another all-time high sooner or later. However, we expect that high to kick off a cyclical correction, which lasts a couple of years.

Market Pulse

Published 17th July 2018 @ 5:50 a.m. EST

The 2790-2800 S/R cluster is an important step towards a breakout. Bulls need to leave it behind them! However, the S&P 500 went up in a 5-wave swing into this cluster on diverging momentum. This increases odds for a correction of some form. Unfortunately, we do not know the depth of the correction. A shallow correction points towards the red scenario whereas a deep correction supports the black scenario. The Dow Jones Industrial is at a similar junction. It is close to its downward sloping trend resistance. Both indices overcoming these levels is a solid breakout signal. The next target above this cluster is the January high.

The orange trend channel needs to hold if the red scenario plays out eventually. Otherwise, the 2692 low gets most likely targeted.

All in all, another spike into a new high remains likely. However, short-term traders may want to wait for a clear break of the 2,790-2,800 cluster.

Short-Term S&P 500 Elliott Wave Analysis

Published 10th July 2018 @ 9:30 am EST 

The dotted trend line resistance got crossed to the upside yesterday. That kind of action implies a very probable attack on the last swing high (y-wave label). Taking out that level (around 2792) implies that a quick bullish resolution to the upside is most likely. This is especially valid if it gets confirmed by another major index. We depict this by the red scenario in the very first graph below. The red scenario fetches even higher odds if 2801 trades up, which means that the S&P 500 is ready to sprint into the unfilled opening gap from early February 2018.

Alternatively, our black sideways scenario is not entirely dead. Some unclean wave action keeps it alive. However, S&P 500 Elliott wave action needs to carry prices well below the dotted trend S/R for that scenario to work out. Hence, a S/L could be placed in a comfortable distance below that orientation point. Odds that the black scenario plays out eventually are fading but still remain far above non-negligible.

All in all,  risky assets worldwide are probably within a topping process. They continue to diverge with regard to failing to reach new highs. Some assets progress further to the downside during “risk-off” swings. Their respective cyclical high gets pushed further out of reach by this action. US blue chips are lagging in this process, which means that they have probably NOT reached their cyclical top yet.

 Medium Term Trend Analysis

Published 16th February & amended 16th March 2018

We expect worldwide topping action in risky assets. A phase characterized by non-confirmation of higher highs among risky assets. As a consequence, positions need to be monitored closely and a trading approach will outperform a buy-and-hold strategy going forward.

The S&P 500 is most likely in cycle wave I, which started at the March 2009 bottom.The US blue chips index needs most likely another push into a new all-time high in order to complete minor wave 5 of intermediate wave (5). This action completes primary wave 3(circle).

Our S&P 500 outlook suggests sizable correction ahead of us in 2018. We expect the correction in primary wave 4° to start in the months ahead. It should trace out as a deep and complex structure due to alternation guidelines.

Long-Term Trend Analysis

Published 20th April 2018

Grand Supercycle in US equities

The US stock market shows price data all the way back to 1790. It can be fitted into long-term cycles, which result in Elliott waves. The popular opinion is that we are approaching the top of a Grand Supercycle trend. It implies that a long and deep correction is ahead of us. Our conclusion is very different to that and we base it on Elliott’s rules and guidelines.

Nobody reading this will witness the top of the Grand Supercycle during their investment career! The last fractal, Supercycle wave (V), is too short in terms of price and time to be near completion as we write this. It is just 9 years young versus its 72-year lasting Supercycle wave (I) sibling. Supercycle wave (I) started in 1857 and carried into the Great Depression. Supercycle wave (III) took 68 years as well. Hence, a 9-year swing does not fit into that picture.

The S&P 500 has completed a (IV) wave of Supercycle degree at its March 2009 bottom from a long run Elliott wave analysis perspective. The long-term picture is analogous to the Dow Jones Industrial Average. Both indices show alternation between Supercycle wave (II) and (IV). Wave (II) was sharp, simple and retraced a great portion of wave (I) whereas wave (IV) finished as a complex and shallow irregular flat. Despite being shallow, Supercycle wave (IV) retraced more than a 38.2% Fibonacci of Supercycle wave (III) on a log scale. Price action during Supercycle wave (III) shows extended behavior. All of this is a textbook fit of Elliott’s rules and guidelines.

Price action confirms our thesis. Supercycle (I) recorded a twentyfold increase in stock prices. Supercycle wave (III) shows a two-hundred fold increase during its extended cycle. The odd one out is the current swing from the March 2009 bottom. It records a fourfold price increase. That stands out again and does not fit into the overall picture. It is way too short!

We are currently most likely approaching the top of cycle wave I, which we expect to take place around 2021. Thereafter, wave action needs to develop cycle waves II-V until the Grand Supercycle completes in US equities.

Grand Supercycle in German equities

The German Dax index confirms the US equity picture. German stocks are completing a fifth wave of cycle degree. We see there a post triangle resolution to the upside. The fifth wave of cycle degree started in 2011. It is too young as well to be complete. More important, we see a three wave swing to the upside since the triangle resolved to the upside. This hints to a 1-2-1-2-3 setup in German equities. That setup after a triangle resolution resolves into strong progress to the upside usually. Again, German equities are way too short in their fifth wave with respect to time and price action as we publish this. Cycle wave 5 will probably run into 2021-2023 before it is complete. After that, the Dax will correct in a fourth wave of Supercycle degree and rally over the next decades. This confirms the picture on the S&P 500. It would have been surprising to see a different conclusion on a western G-8 economy.

Fundamental Outlook For US equities

The implication of an objective interpretation of the S&P 500 Grand Supercycle is a secular bull run into 2021. It will be corrected thereafter and progress further during the next decades. This translates into a bullish outlook from today’s point of view. How is this possible despite elevated equity valuations at the time we write this paper?

Most likely due to nominal economic growth. Nominal growth is decomposed of factors such as inflation, population growth, technological growth, etc. These factors affect earnings. Especially our inflation forecast is likely to play a key role in this equation going forward. Stocks are a nominal asset and likely to increase during inflationary periods.

The Grand Supercycle top has been called way too often during the past couple of decades. The same analysts will continue to make this call if they do not objectively analyze the long-term cycle. They are currently off target by about six decades.

An inflation driven bull run is more likely instead of witnessing the Grand Supercycle top in the next ten years.

Technical Analysis