The U.S. stock market could begin a decline similar to Fall 2018, January 2016, August 2015 and August 2011.
In other words, stocks could be heading for a fast and furious wave C decline, in Elliott Wave parlance.
Yet despite last week’s bearish market action, it appears investors are becoming more optimistic. And that should alert us all to the potential pattern of a C-wave decline. As the Bespoke Investment Group pointed out on Friday:
“Last week’s declines were some of the steepest in 2019, but despite this price action, investor sentiment – as measured by the AAII’s weekly Investor Sentiment Survey – has not still blinked. In fact, 43.1% of survey respondents reported bullish sentiment, up from 39% last week. While still within its normal range by historical norms (within one standard deviation from the historical average of 38.2%), this is the highest degree of bullish sentiment since October 4, just before the market reversal.
From an Elliott Wave structure perspective, the market most often peaks when it completes a five-wave structure. Whether it means the market is falling after an impulsive five-wave rally, or it means the market is falling after a C wave of a corrective rally, most highs are made after some form of wave pattern has ended. five waves. And, since this is what we see the vast majority of the time, I attempted to identify a five-wave pattern to prepare for an impending market top.
However, in the minority of circumstances, we do not get a standard five-wave structure marking a top. The break below 2,880 points on the S&P 500 SPX,
last week has now warned us that either this market top will be complemented by a diagonal ending pattern which would make the 4th wave low on Friday and point us to a higher high in the 3000 region or we We may have finished our top of the market in rarer form. Either way, the drop below 2,880 now leads me to follow the possibility that the wave C decline we expected could start sooner rather than later, as the odds of reaching the region of higher of 3,000 has decreased and the trade for it has increased. risk.
In the simplest terms, as long as the market stays below 2,925 this week, the bears can support this market. All they have to do is break below Friday’s low, and that will provide a bearish structure on the downside, as shown on the attached five-minute chart. While it still takes a sustained follow-up below 2,785 to initiate a cascading drop, a lower low early in the coming week could simply end the first wave off recent market highs, followed by a retracement of wave 2.
However, if the bulls can pull us back above 2,925, they open the door again to push us higher towards 3,000 to complete a 5th wave in a final diagonal for the [c] wave of the wave b rally that we have been following since the December lows. But, as I noted earlier, attempting to trade against that possible final high top comes with significant risk. And, if we were to see lower lows early in the coming week, that would take the potential for that immediate high below 30%.
Check out additional charts showing Avi’s wave count on the S&P 500 over multiple time periods.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live trading room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD and VXX), an interactive member forum -analyst and a detailed library. of Elliott Wave Education.