The near term outlook from last week remains intact. The S&P500 has continued lower in what I’m considering to be an intermediate-term correction. There are still two valid interpretation. One labels the five waves up as a completed Primary 5th wave, which means the bull market has just ended. The second interpretation labels this 5-wave advance as Intermediate wave 1 of 5, which means there are still 2 more waves of multi-month advance to be expected in the future before a more sustained bear market.
I’m following the latter interpretation. This next move is key, as it will rule out one option. A collapse beneath the march lows favors a long term bear market in asset prices has already started. A moderate pullback followed by an advance to new highs suggests this bull market (The Fed) still has a little more left in the tank.
The current interpretation is that we have completed (or almost completed) wave A of a zig-zag pattern unfolding for intermediate wave 2. I’m looking for prices to follow and up/down sequence as it plays out over the next couple of weeks. The 38.2% retracement level (orange line) is a reasonable target. If wave A has not yet finished, it could be deeper.
Here’s a closer look at the presumed wave A. It might have one more move down, but it is possible to label 5 waves as shown above. It does result in an oddly shaped wave 3, however.
Higher prices might sound crazy given the very high equity valuations. I’m relying entirely on technicals for an intermediate term bullish outlook, as fundamentals are being totally ignored. It’s clear that fundamental indicators of the economy have broken down and for the most part, are not rebounding in a V-shape recovery. Real economic growth often lags asset price performance at the tail end of a bull market. It’s also clear that this market is not pricing assets based on fundamentals. Valuations are based on hype. Money-losing companies are in style. Psychologically, this makes sense as investors stay optimistic in hopes that “it’s different this time” despite no supporting evidence. So far, good news as been bullish and bad news has been even more bullish. So long as folks have both confidence in the Fed and the money to act on it, the market can continue higher.
The long awaited crypto bull market might continue in tandem with traditional equities for a bit longer. We’ll see!
Happy Trading!