Sentiment Speaks: Can A Crash Be Averted... For Now?

It has certainly been an interesting year or so since we struck the low in October of 2022. If you remember, most were looking for the market to head considerably lower at the time. But, then again, what else is new? Most expect the market to continue linearly in whatever trend is in place at any point in time.

Yet, we were strongly suggesting that most investors begin to look upward, as we maintained that the market would rally to the 4300+ region from the 3500 region lows we expected before we bottomed. In fact, I was even outlining to members that the potential was in place to rally as high as 4505SPX off the 3500SPX region, even before we bottomed. And, amazingly, the market even exceeded my expectations by 100 points.

And, now, the market has done it again. As we were approaching the 4100SPX support region I was outlining in my analysis, many were again expecting a continuation lower. However, we clearly noted that we were expecting a rally back to the 4350-4475SPX region. And, again, the market has followed our predicted path and even bested our expectations again by 100 points.

Now that the market has rallied back towards the recent highs, the atmosphere is ripe for a market crash to occur, as I outlined in my last article on the stock market:

“This is no different than when we say that the weather conditions are such that a tornado can develop. Does that mean it will develop?”

Again, while the environment is ripe for a market crash to develop, it means we have to be extra vigilant at this time. This is where Elliott Wave analysis can provide market context as to how the view the next step the market provides to us. So, I am going to provide some technical guidance as to what we are seeing right now.

Thus far, we have seen a 3-wave rally off the low, which we classify as an a-b-c structure. While the b-wave was unusually small, it still fits well within that view. Moreover, the c-wave segment of this rally off the 4100SPX low has been hitting its head at the point wherein the c-wave was equal to .764 times the size of the a-wave. The great majority of the time, we see equality between the a-waves and the c-waves. Yet, that ratio does satisfy a reasonable sizing for a c-wave rally relative to the a-wave.

So, here is the kicker as to how we will see the market as we look towards 2024. If the market remains below 4607SPX, and then declines below 4480/4500SPX support in a five-wave structure, that would suggest it was setting up for a market crash, which will initially point us down to the 3500-3700SPX region and ultimately down to the 2900-3300SPX region after a corrective bounce.

However, if the market should either continue to the a=c point at the 4630/40SPX region before breaking down below 4480/4500SPX, or if the market should stay below 4607SPX and decline below 4480/4500SPX in a corrective manner, then we are likely setting up for a rally to 4800+ as we look towards 2024. In the former scenario, a more direct move to 4630/40SPX would still likely provide us with a larger corrective pullback before we begin the move to 4800SPX.

These are the cues I am following over the coming weeks. And how the market takes shape over the coming weeks will likely tell us if we can get to a new all-time high before that long-term bear market I still expect begins in earnest or if that bear market has already begun.