The Santa Clause Rally is in full swing but, how much longer can it last??

We’ve talked about the Elliot Wave Theory many times over the past few months.  This 5 step wave pattern is great for helping to determine where we are within the market cycle on different time scales.  It’s not an exact science.  Instead, Elliott Wave gives us probabilities of where the price chart is likely to go.  We use the technical indicators to support/strengthen the argument for each possibility.  Let’s take a look at the S&P500 (C Fund), over 10 years, 2 years, and 6 months to get an idea of the possibilities going forward.

Very Long Term

Looking at the 10 year chart below, we are clearly in the 5th wave and at the upper channel line.  The channel line is likely to cause some resistance to further price movement either way but, there are really 2 primary possibilities here. 

First, we could be at the end of the 5th wave.  If that is the case, 2018 is likely to get ugly pretty quickly…  The second possibility can be seen in the next chart (2 year weekly). 

Long Term

The 2 year chart below is the 5 leg of the chart above.  The 2 year is also progressing in 5 legs.  The first 2 legs below look almost identical to the first 2 legs above!  However, we have not yet seen the completion of the 3 leg below.  The pattern of the 3 leg below looks very symmetrical and, since it is running into resistance at the very long term upper channel line, this would be an ideal place for the end of the 3 leg.  When the 3 leg does complete, we should expect to see a multi-week to several month decline, then a final push to new highs to complete the 5 leg Elliott Wave Pattern.  

So, the second possibility is that the upcoming correction will be a set up for one final push higher.  

Short Term

The short term (6 Month Daily) chart below still looks strong.  Friday was a big day and pushed us to new highs.  The correction is coming but, we’re not quite there YET…  The 50DMA (blue line) is going to become very important over the next several months.  More on that at this all plays out.

Bonus

The I fund chart below is forming a topping flag pattern.  If the I fund falls hard below the lower channel line, watch out below!

Summary

The charts are serving us up 2 primary possibilities.

  1. The upcoming correction is the beginning of a significant fall in TSP stock fund prices…
  2. The upcoming correction is a set up for one final run to new highs later in 2018.

The next correction is ALMOST in sight.  As this all plays out, we will be talking about trend lines, technical indicators, and fibonacci numbers to determine market risk and the best times to move between the TSP stock funds and the G fund.   

Please post questions to comments, get your last minute shopping done, and have a great week!

Jerry

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