S&P 500 Weekend Update: Wave 4 Rally Has More Upside

Mark Newton

Friday’s sharp stock market reversal higher has taken momentum back to overbought levels.

However, the act of regaining earlier week highs (combined with bullish breadth) is definitely a structural positive on a 3-5 day basis.

8/1 positive market breadth with volume flowing at nearly a 25/1 ratio into Up vs Down stocks should keep the rally afloat into next week.

Note that this goes directly against what was thought most likely (especially given what had happened with Technology following Apple’s decline).

While difficult to flip-flop on a one-day basis, one has to respect the move back above early January highs in thinking this move still has some upside now technically before failing.

From an Elliott standpoint, Friday’s move higher makes the decline from November still appear to be on wave 4 (bounce up), as opposed to thinking prices were beginning a fifth wave down. Thus, the bottom line is that it’s still likely that this rally is sellable into mid-January and that the S&P 500 will not get over 2600-30 before turning down to retest recent lows into late January.

S&P 500 Daily Chart Analysis

The S&P 500 reversed Thursday’s steep decline with an equally impressive move higher. Overall, heading into next week, the near-term trend now has shifted to bullish.

Holding the move over 2521 is very bullish, and should allow traders to buy minor pullbacks early next week (with a stop). Should we hold above 2500, I’m thinking that a move up to 2600-30 is possible. A move below would be neutral and any reversal that pushes the S&P back under 2435 puts the bearish scenario back on the front burner.

s&p 500 index rally higher investing analysis wave 4 elliott wave chart_january 4

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Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.