The February 8, 2018 Profit Radar Report published the following chart and commentary:
“The S&P 500 moved from the yellow zone into the green buy. Does that mean it’s time to buy? It depends on the time frame. Short-term, potentially yes. The hourly chart shows a 5-wave decline into today’s low. A completed 5-wave move, according to Elliott Wave Theory, generally projects a bounce followed by another leg lower. There were many extended fifth waves on the way up, so there is a distinct possibility that there will be extended fifth waves on the way down.”
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As it turns out, wave 5 did extend lower and hit the wave 5 target projected on the chart the next day.
As mentioned in the February 8 commentary, a 5-wave decline is generally followed by another leg lower. However, the rally from the February 9 low at 2,532.69 is not clearly corrective.
New Highs or Relapse
The chart below identifies the next key levels to watch. Corrective rallies tend to retrace no more than 61.8% of the prior decline. The 61.8% resistance level for the S&P 500 is at 2,743. Red trend line resistance (going back to April 2016) is at 2,723.
Thus far, the rally from the February 9 low has been strong in terms of price (170+ points in 4 days), but not necessarily breadth. As the lower graph shows, the percentage of advancing NYSE stocks barely exceeded 70 the last week.
That’s not weak per say, but also not unequivocally strong. A day or two of 80%+ readings would have been more indicative of a sustainable rally.
In short, how the S&P reacts to the 2,723 – 2,743 resistance cluster should provided clues about whether stocks will relapse to test their panic lows or move toward new all-time highs.
Continued updates are provided via the Profit Radar Report.