The Armstrong business confidence model that predicted an interim high in mid- to late April 2009 looks rather on target, as confidence appears to have blossomed suddenly in many places. People are beginning to ask whether the rally may even become a new bull market. Is it possible? Here are a couple of scenarios. One is Tony Caldaro's Objective Elliott Wave count, in which he has the markets going up in a large B wave after finishing wave A three weeks ago. In some of his discussions, he has also stated that the structure of an Elliott Wave flat might be fitting for the correction. His B-wave target is about 1100. But Elliott Wave flats often have the B wave retrace 90% of the way back to the top. Not always, but it is common according to the Elliott Wave Principle book. A B wave retracement of 90% would lead the SPX to 1485. Or, if it becomes an expanded flat in the S&P 500, then it would lead the SPX to new highs, such as a level that's 1.382 of the drop from 1576 - in other words, to 1922. Do the fundamentals really support that possibility? Somehow, I just don't see the SPX getting to 1922 over the next couple of years ... but 1100 seems realistic, and maybe even 1485 could happen if people get wildly optimistic about things like the relaxation of the mark-to-market rules and perhaps the Nasdaq, the transports, oil, commodities, and other parts of the economy kicking into higher gear. For what it's worth, I don't know if that would be consistent with the Armstrong model that points toward a lower low in business confidence after this swing high level. It would depend on whether the markets would continue higher after the mid- to late April Armstrong swing high was done (similar to the way the markets went lower after the Armstrong low of early 2008 - but remember, the Armstrong model is marching lower into 2010). Not that Armstrong decides the question - just commenting - and given the fundamentals, it's difficult to imagine the equities markets really getting above their 200-day moving average.
What about other views? Well, the "mainstream" sort of Elliott Wave folks seem to be focused primarily on a view that the Dow Jones Industrial Average and the S&P 500 completing a set of 5 waves down to finish a large wave (1) down, with the idea that we're now seeing the beginning of wave (2) up. One common Fibonacci retrace level for a second wave is the .618 retrace, which would point to 1230 in the SPX. Another could be the .50 retrace, pointing to 1123 (pretty close to Tony's B wave, which makes sense since he figures his B wave to likely retrace 50%).
Another and much more bullish view would be that the markets have already finished, or will soon finish (if we see lower), a large fourth wave down and there's one more fifth wave up to new highs, that would likely express as an ending diagonal. I've been thinking about this quite a bit, as it's an idea several of us used to discuss in the prior trading community where I used to be a member. Frankly I now doubt that such an idea would really "fit" for a couple of reasons. One is the factor of time - that's why I looked so much recently at the long-term Supercycle charts, to see if there really could be enough time "left available" in those charts. But unless such a fifth wave could complete within three years, I'm concerned that the Supercycle wave (V) would take longer than the wave (III). Well, why not, it can happen, just so long as wave (III) is not the shortest - if that is the case, then I would tend to think that such a large ending diagonal might complete perhaps in the range of the years 2017-2020 (perhaps later). One thing to look for would be its first wave expressing as a large ABC zigzag (which would also look a lot like either Tony's B wave, or the other place's wave 2 up). But I don't know that we should really expect the Supercycle wave (V) to extend so much longer, past 2012. Given the fundamentals, it also seems reasonable to expect that the current correction will take longer to complete. I'm tilting to the idea that wave (V) may be completed already. Which does leave open the idea that the next rally after that, will be the opening first wave of another subsequent wave up - something along the lines of "Wave Five" if you get my drift. I would tend to think that such a subsequent Wave V might take in the range of 30 to 60 years.
Personally, I admit that I do have a point of view, and that is that the market is most likely to test the 200-day moving average, and then perhaps the 200-month moving average. A higher target would be the midline of the monthly chart's Bollinger Band. With the idea that afterward - and with the timing of April 18-23 in mind - rolling over to lower levels such as under 600 (maybe under 500, and some are saying under 400) in the S&P 500.
Another factor to consider is the date of 1843, which Raymond Merriman mentioned the current time frame as sharing from a financial astrology point of view. That year bottomed a Kondratieff wave, hinting that we may be at a signinficant low point for commodities. Well, hello! that sure fits with the commodities charts! But we don't know that this leads the commodities to new highs anytime soon, nor do we know that this would lead the equities markets inexorably to new highs either.
But I want to be sure that my point of view doesn't become a bias, so I'll be trying my best to screen that out as I continue to post charts and comments here. Besides, I had even harbored an idea that the markets would be proceeding down from here to new lows, before seeing a more substantial rally - but on review, I don't know that this idea fits the factors mentioned above, either. So for now, I'll be content to see if the banking index can move higher and if the S&P 500 can move above Thursday's levels, then 875, then 944, and if so then the higher levels mentioned above. Below are the McClellan charts, as well as a monthly chart of the Dow Jones Industrial Average.
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