In early March, see here, I showed a possible Bullish wedge pattern was forming, which if confirmed, i.e., a break out of the pattern, would target ~SPX4600.” The index topped at SPX4637 in late March, and although back then I preferred to look higher based on the Bullish-looking setups, the market turned lower. But nobody can be right all the time, and nothing is guaranteed, so always keep an open mind and always take profits when upside targets are reached, and always place stops to protect your hard-earned money.
Figure 1. S&P500 daily candlestick chart with detailed EWP count
Similarlty to the January-March setup, positive divergence has been building again in the technical indicators. Besides, the mid-June low can be seen as a classic “overthrow”, where price moves below the diagonal’s trendline, only to move quickly back inside.
It now requires a breakout above the green dotted trendline, which then holds, i.e. no relapse, to suggest the wedge has been completed. Similarly to March, when a wedge/diagonal completes, the retrace will be swift and bring the price back to around the start of the price pattern. In this case, a 62-76% retrace of the entire Year-To-Date Decline targets SPX4365-4530 and would match well. However, please note the rally to SPX4600+ took about 2-3 weeks after a three-month decline, and thus if the current six-month-long diagonal pattern completes I expect the rally to last longer than a few weeks.
Besides, the index is below many of its important simple moving averages (SMAs, 20, 50, and 200d) which are declining, i.e. “the traffic light is red”, and thus the Bulls will face a lot of upside resistance which can further delay the rally. Lastly, please note that if Super Cycle-IV is underway, as I postulated last week, then ”wave-A of SC-IV has just started, and the first leg lower (wave-a of A) should wrap up soon, to be followed by a multi-month relieve rally/dead cat bounce (wave-b of A) before the next leg lower starts (wave-c of A).” The wedge pattern and retrace as described in this article would fit the wave-a and b of the larger wave-A of the SC-IV scenario very well.