More To Go

SPX has met the expectations outlined in the last letter and more bullish action is expected since last week’s action has all the markings of an impulse wave which appears to be on target to reach our 2500 projection. I say “appears”, because in these late stages, traders may not wait till the last minute to take profits, and this may shorten the full extent of the projection.   

With the current structure subdividing, we could go a little higher before the index settles into a minor consolidation. The first wave of the diagonal lasted about a month and the second a few days more. If the current one takes that long to complete, it will put us about two weeks away from the 20-wk cycle low which is due around August 15, and result in a very sharp and extended decline into that date.   

As we move forward, we should be able to become more and more specific about the final high of the rally in terms of both time and price. 

Analysis: (These Charts and subsequent ones courtesy of QCharts.com)

Daily chart

Wave 4 of the diagonal found support just above the 2400 level. You can see why on the chart. It’s a strong support level resulting from the top of the previous uptrend at 2400, and that of the first wave of the ending diagonal. We could have retraced to 2380 without endangering the current structure, but the fact that we remained above 2400 is a sign of strength and this is why it is not unrealistic to think that SPX has a reasonable chance to reach its full objective of 2500.  

Another sign of strength comes from the gap opening last Wednesday. This was attributed to Janet Yellen’s remarks during her report to Congress and whatever the cause, it showed that traders still expected some additional price appreciation. The index did stall on Thursday in the face of severe overhead resistance, but it blasted through it to a new all-time high  on  Friday. Over the last few days, SPX had some help from a good rally in the tech stocks, although they remain under their former highs. But since the DJIA and NYA also made new all-time highs, it’s obvious that there is still plenty of strength in the overall market. Of course, if my analysis is correct, we might feel differently a couple of months from now.