S&P 500: Corrective Pullback Needs to Hold Above 5048 for a Rally Toward 5350

First published Monday March 4 on ElliottWaveTrader.  

This past week, I challenged my clients in the following manner:

“Look back this week at all the things you thought were “important” from the announcements you expected and then look at the market and see just how much of an impact they really had. And, you should do this weekly. You will be amazed at how little it really matters in the bigger picture.”

And many of our long-term members acknowledged the same and how it has improved their investing/trading results:

“I have made better and less emotional decisions since I joined. I don’t miss the feeling of uncertainty I had before.”

“With my portfolio hitting another ATH today, it hammers home the point that the only change in my trading since I’ve been a member is that I’ve gotten much better at actually listening to what Avi is saying.”

The point I continually make is that one should be focusing primarily on price and ignore all the noise being presented throughout the media. Anyone who has followed the common factors focused upon by most investors have been surprised by this rally to 5000+.

Yet, I think the market may have an even bigger surprise in store for investors as we move through 2024.

One of the things that will surprise investors in the coming years is the significant weakness within the banking sector balance sheets. The reason they will be surprised is that most investors are ignoring the clear signs we have seen over the last year in the banking industry.

While I have been writing about these issues for two years now, consider that three of the four largest-ever bank failures have happened over the last year. The three banks that failed ranked among the top 30 U.S. banks by assets last year. And, we have not even begun the bear market yet.

In my humble opinion, banks are in worse shape now than in 2007. In 2007, there was one major issue on their balance sheets which caused a major financial and banking crisis. Today, multiple issues are sitting on their balance sheets.

The next thing that I think may surprise investors is the speed of a potential market reversal which may be setting up in the .

To date, the rally off the October 2023 low has provided very little retracement. When we began the pullback I outlined to expect a few weeks ago in my last published article, we had to adjust our view during that pullback to the potential that the market will not fulfill the complete pullback we expected. As it was developing, I had to adjust my support to 4930SPX, which is basically where the market bottomed during that last pullback.

Moreover, we had set our next resistance overhead to 5155SPX. And, as we are approaching it now, the market is providing us with another potential extension. So, the parameters for the coming week are as follows. I am expecting a pullback in the coming week. If that pullback is corrective, and we do not break back below 5048SPX, we have a set-up that will then point us to the 5350SPX region next. And, moving through the 5155-5180 resistance overhead points us to 5350-5390.

And, then we can move on to the next potential surprise. Once this next rally completes, and we then break back below 5048SPX, it will open the door to a potential decline that can be exceptionally rapid and violent in nature, which ultimately points us down to the 3500-3800SPX region later this year.

So, let’s take one step at a time. The 5048SPX level is support for the coming week, and if it holds, then it sets up a rally to the 5350+ region over the coming weeks, which can lead to a major market top. And, when the market sees a sustained break of the 5048SPX level, that will open the door to a major market decline in 2024.

In the bigger picture, I have outlined in prior articles the signals for which I will be closely watching to suggest that a long-term bear market is about to take hold. I personally have my plans in place already should we see those indications. I would strongly suggest that each and every investor develop their own risk management plan which suits their investment style, time horizon, and risk profile.

“By failing to prepare, you are preparing to fail.” – Ben Franklin