S&P 500

Summary

Published 19th June 2018 & validated 14th August 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.

Short-Term S&P 500 Elliott Wave Analysis

Published 14th August 2018

Our S&P 500 Elliott wave analysis from the 7th of August remains perfectly valid. Price action left an opening gap within the third wave to the downside during past week’s selloff. That’s another piece of evidence that prices are not done to the upside for now. Gaps tended to get closed historically most often.

However, the current correction is probably incomplete right now. Wave structure looks best with another drop before minuette wave (ii) completes. It is still rather short with respect to time and price retracement. Nevertheless, the key takeaway remains that the S&P 500 is most likely within a correction that resolves to the upside sooner or later.

Another interesting observation is that all major US indices are showing different wave patterns as we publish this. That’s a sign or sprout of divergence. It fits our topping process in risky assets worldwide case. Equity markets may be getting ready to show non-confirming highs.

Published 7th August 2018 & amended 10th August 2018 (chart only)

The S & P 500 continues its path to the upside. Yesterday’s close is just three-quarters of a percent short of the all-time high. Bearish voices have been suggesting a double top pattern lately. Double tops of very rare patterns. More than 9 out of 10 times will produce a breakout to a new high instead than a double top. It is best practice to label a double top after it has been confirmed and not upon reaching the old high.

The most likely pattern remains upside continuation of some form into fall 2018. Nevertheless, a textbook Elliott wave look would result if we get another correction. It would lead once more into a test of the 2790 to 2800 cluster. Odds for a retest of the respective cluster are lower than during the past week. This means that the market may carry on up without a retest.

All in all, a retest of the 2,790-2,800 cluster results in the best look of the wave structure overall. The most important point remains that prices should continue along the orange trend channel to the upside sooner or later. We expect US equities to rally into a cyclical top.

 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