By Avi Gilburt
Last week, I was ideally looking for a pullback in the market before we broke out over 2215. However, the action during the past week may put a damper on any further pullbacks.
When a chart is set up for the heart of a 3rd wave, it usually portends a powerful move. In our case, and as shown in my long-term SPX monthly chart linked below, after a year-long consolidation below the 2120 region on the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.56% , the market retested that region in wave (1) of V, pulled back in wave (2) in June, rallied in wave (i) of (3) into a new high in August, and spent the next two months pulling back in a wave (ii) of (3).
That means the market was set up for the heart of a wave (iii) of (3), which is usually a very powerful move. Within that wave (iii) of 3, we also see a wave 1-2 set up for wave (iii), but, sometimes, since it is such a powerful move, the wave 2 of (iii) does not provide more than a shallow pullback. That may be the case in our current market stance, which the market may have been telling us this past week.
As you can see from the five-minute SPX chart linked below, waves i and ii of what may already be wave 3 and waves (1) and (2) of what may already be wave iii of 3 have also been exceptionally shallow. Again, this does happen in the heart of 3rd waves.
The upcoming week should be straightforward and provide us guidance as to whether we are now in melt-up mode, or if a pullback can still be seen. Should we see the market gap up Monday, and not break down below 2203SPX, then we are likely on our way to the 2240SPX region in the dark green wave (3) of iii of 3 of (iii). As you can see, it means that we are heading to the 2280-2300SPX region for wave 3 of (iii), which will likely be struck in December.
But if the market is able to break below 2203SPX on Monday, then it still leaves the door open for a more protracted pullback before we begin that run to 2280-2300.
Overall, the market is still setting up quite nicely for the major rally we expect into 2017. Our target in the SPX remains unchanged between 2537-2610. Based upon much of what I am seeing, it seems we may be hitting that target around the fall of 2017. At that point, I will be looking for at least a 15% correction.
See charts illustrating the wave counts on the S&P 500.