Bullish Resuscitation

For more than a month the U.S. stock market momentum has been weakening.   As the market climbed it seemed to be gasping and wheezing as fewer stocks participated with each uptick.  Death of the rally appeared imminent.   

Then on 06/02/23 the U.S.  May Payroll report showed the economy was stronger than expected – the stock bull market is revived!  The powerful rally blew away a bearish “Rule of the majority” signal and a VIX topping signal.  With both of these broad bearish indicators invalidated the door is now open for additional upside action.

How much upside action?   The daily S&P 500 (SPX) chart courtesy of Trading View illustrates one possible scenario.

Several blogs on this website have illustrated that from an Elliott wave perspective, the first phase of an SPX bear market may have ended at the 06/17/22 bottom followed by an Elliott wave – Inverse Horizontal Triangle.  Another possible scenario is that after the 06/17/23 bottom an Elliott wave Inverse Expanding Flat could be forming. 

Expanding Flats are corrective patterns that are composed of three waves.  The first wave sub divides into three parts.  The second wave also sub divides into three and terminates marginally beyond the point of origin of the first wave – in this case the 06/17/22 bottom.  The third and final wave sub divides into a five-wave motive pattern that terminates marginally beyond the point of origin of the second wave – in this case the 08/16/22 top. 

Sometimes the five – wave motive pattern will be in the form of an Elliott wave – Ending Diagonal Triangle (EDT).  An EDT is a termination wave that appears in the fifth wave position of motive patterns, and in the “ C “ wave position of corrective patterns.  EDT’s have a wedge shape and each of the five waves sub dived into three waves or a combination of three wave patterns.      

If this wave count is correct the termination point is marginally above the 08/16/23 peak of 4,325.28.

The next daily SPX chart zooms in on the rally after the 10/13/22 bottom. 

Note the choppy overlapping nature of the rally which is a characteristic of EDT’s.  It’s doubtful the move up after the 10/13/22 bottom was the start of a sustained move higher.  Early in a bullish move you would expect the rallies to be smoother.

In an EDT the fourth wave almost always moves into the territory of the first wave.  In this case that territory begins at the Minute wave “i” top at 4195.44.  The presumed Minute wave “iv” terminates in chart support near 4,100.  

The EDT termination date of 06/27/23 is based on a combination of methodologies which will be explained in a blog assuming this wave count develops.

Stock market tops can happen at any time and sometimes without bearish divergences. The next daily SPX chart shows an alternate Elliott wave count with 06/02/23 as a significant peak.

Perhaps the action on 06/02/23 was a buying panic, the reverse of a selling panic at the end of a bear move.  If this is what happened,  it could mean “game over” for the stock bulls.

One day of bullish action does not negate: larger bearish momentum divergences,  bearish chart patterns, and bearish seasonal factors.  Focus on the big picture.  There is considerable risk holding or entering long positions on most U.S. stocks.