The Chart du Jour
The most obvious Elliott wave count for the S&P 500 (espoused by several other Elliott wave analysts out there) is that we have been in the midst of a large A-B-C corrective period since early April. Within this formation, early April to early June can be deemed the A wave up, early June to now seen as the B-wave down, and we may now be due for a large C-wave up.
Although on a standalone basis looking just at the S&P and Nasdaq indices, we would agree with such a count, we have resisted adopting it for three primary reasons: 1) our bearish interpretation of many financial sector charts; 2) a cyclical view (basis our 8.6 and 4.3 month rhythms) that an early June high should lead to a late October low; and 3) complacency in the media and investing public, reflective in a relatively low Investor's Intelligence percentage bearish figure -- indeed one of the lowest such readings in years.
All of that said, after a weak close Wednesday, stocks have rallied out of the shoot Thursday on no significant news. For the moment the S&P September futures remain under the 40-day and 100-day moving averages shown below, but should S&P futures start to trade above 1243 (the 40-day moving average level), we would be very nervous that a C-wave rally might indeed be underway. For risk control purposes, therefore, we must respect this possibility even if it is not our favored path. A C-wave rally, if it were to transpire, could easily carry the S&P up into the 1315-1330 region (near the 200-day moving average depicted on the September futures chart below).
Conversely, a failure below 1243 in the next day or two would still leave the bearish case intact, and today's equity strength nothing more than a final "hook move" before significant weakness to come. But we are nervous and attentive to admit that we are wrong. We will not be stubborn if both the 100-day and 40-day moving averages -- currently still above us -- are taken out. And thereby live to fight another day.
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