Assessment of Elliott Wave Principle Unfolds
In a previous assessment, the S&P 500 was projected to experience a retracement down to $4830+/-10, potentially dipping to $4805+/-5 before commencing a rally to $4900. This analysis unfolded as expected with remarkable precision, adhering to the Fibonacci-based impulse pattern.
Extended Rally and Price Targets
The current extended (grey) W-v ascent has set the next logical target at $5026, representing the 200% extension of W-i from the W-ii low – a common 5th-wave target level. Additionally, the rally from the October 2022 low, now re-labeled as a 5th wave (black W-5), suggests a 200% extension target at $5046.
Market Momentum and Historical Context
The S&P 500 has witnessed a nearly uninterrupted 15-week rally since October 2022, reflective of a non-subdividing wave, characteristic of a 5th wave. Notably, the 14-week Money Flow Indicator (MFI14) recorded its 2nd highest reading in 42 years, a rare historical occurrence. However, past instances of MFI14 readings above 92 have resulted in subsequent market fluctuations, indicating a potential downturn may be on the horizon.
Market Breadth Indicators
A deeper analysis of market breadth indicators, including the NYAD and BPI-SPX, suggests a decline in individual stocks’ bullish signals, despite the overall indices marching higher. This discrepancy in the advancing stock markets and deteriorating individual stock performance raises concerns about the sustainability of the current rally.
Impending Market Top
While acknowledging the dominance of price action and the transient nature of divergence, the combination of EWP, Fibonacci-extension levels, extreme overbought conditions, and weakening market breadth points toward the likelihood of a significant market top in the making.