iamthewolf

Elliott Wave: Week of 12/3/18 - Can the market pass these tests?

SP:SPX   S&P 500 Index
Several important tests are ahead as the year comes to a close. Will the market pass the tests, and if not what consequences are ahead?

Let's take a look at several important technical levels starting with the week's opening.
  • 1. Moving Averages: Simple and widely followed, the 200d MA is where Friday's close sits, with the 50d MA slightly higher but dropping. At current levels you're likely to hear about "Death Cross" significance as 50d drops below 200d in the very near future. Those levels, and the related market narrative, are the first resistance level .
    2. Just above the MA levels is the first Fibonacci level at 2785 based on the extension from Feb 2018 low to Sep 2018 high. Next Fibonacci level above that is 2853. Both will test the market's ability to move higher.
    3. The primary Elliott Wave view is we're still in Wave B of the correction started in October. That view remains in place, with lower degree Wave c (not shown) currently underway as the market moves higher in Wave B (red). I've shifted the target for wave B to align with a length equal to the initial rise (a of B) to terminate at 2845-60. That level is in agreement with the second Fibonacci level in 2 above. In addition, a move as described will be "self similar" to the decline/rise in Feb 2018 before the re-test happened in Apr 2018. The relationship as respective wave 4 movements has significance.
    4. Our Butterfly harmonic is more symmetrical at the level with c in the same area as noted in 2 and 3 above. I've placed c at a reasonable level using .764 of the AB decline from October to November (technically 2863 and close to levels noted in 2 and 3 above).
    5. A market failure at the levels mentioned in 2-4 will shape a right shoulder of Head-and-Shoulder shape at various degrees using the Sep 2018 peak as the Head.

On the non-technical front there are additional tests ahead. I do not factor them into my analysis, but like most I pay attention to narratives about market movement.
1. The G20 Summit is over and any news will impact the market short term. My interpretation is whatever the reaction is will thus be priced in as the tests mentioned above come into play.
2. Fed talk about future rate hikes is priced in already. A near term increase of .25 looms ahead and will be met with new headlines about Yield Curve inversion as short term rates approach declining longer term rates.

In short, hurdles to further market advance are significant. While they're not insurmountable risk management still suggests caution. The confluence of resistance described in 2-4 above provides a major test in the event the market surpasses the first, and easiest, hurdle of 200d and 50d MA.




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