ELLIOTT WAVE UPDATE -- NEXT TARGET FOR FINAL UPWAVE IS 1245-1250 IN S&P 500 -- APRIL IS TIME TARGET FOR POSSIBLE TOP
LOOKING FOR 62% RETRACEMENT AT 1250 ... With the S&P 500 having broken out of its recent trading range, and trading at the highest level in more than three years, it's time to revisit my earlier Elliott wave interpretation and came up with some possible upside price and time targets. Let's start with the monthly bars in Chart 1. As far as the technical indicators are concerned, the monthly MACD lines are still positive. The buy signal given in early 2003 is still intact. The monthly RSI line, however, is in overbought territory. That's of some concern, but doesn't prevent the market from moving higher. The question is how much higher. The horizontal lines measure the percentage retracements of the 2000-2002 bear market. The S&P has already moved above the 50% level. That makes the next upside target the 62% retracement level which sits near 1250. There are some other technical measurements that confirm a move at least to that higher level.
Chart 1
TARGET FOR WAVE 5 IS 1245 ... The weekly bars in Chart 2 show the same Elliott waves that I've drawn several times before. My interpretation of those waves is that the rally that started in August of last year from 1060 is the fifth and final wave in the cyclical bull market that started in October 2002. Nothing has changed there. The question is how high can that fifth wave go. The way I prefer to arrive at that upside target is to compare the size of waves 1 and 5. That's because waves 1 and 5 are usually similar. The height of wave 1 is 185 points. That means that wave 5 should be at least as big. Measured from the bottom of wave 4 at 1060, that yields an upside target to 1245 -- which is very closely to the 62% retracement shown in Chart 1 at 1250. [It is possible to arrive at higher objectives by using other measuring methods].
Chart 2
TARGET FOR FIFTH WAVE OF FIFTH WAVE ... Chart 3 shows my interpretation of the wave structure that started last August (the fifth wave). That fifth wave, however, should also show five waves which I've also drawn. This chart suggests to me that the January downturn marked a wave 4 correction. As I've suggested before, that would make the rally that started in early February the fifth wave of a fifth wave. Here again, the question is how high can it go. I'm using the same measuring technique that I employed in Chart 1. I'm assuming wave 5 will be equal in length to wave 1. Wave 1 is 81 points. Adding that to the February bottom at 1163.75 yields an upside target to 1245 which is the same target found in Chart 2. Which is close to the 1250 target given in Chart 1. That doesn't mean to say that the market can't exceed those levels. But it should at least reach them. The next question is when?
Chart 3
APRIL IS LIKELY TARGET FOR A TOP... During the first week of February, I wrote "It Looks Like Market Has Begun Fifth Wave of Fifth Wave" (February 04, 2005). In that report I addressed a possible time target for that last upleg to end. I had earlier recommended some profit-taking during the month of January based on the fact that January marked the end of the seasonal bulge that normally runs from November through the first month of the new year. January also ended the strongest "three month span" of the year and is normally a good time to take some money out of the market. After January, the next strongest month is April. An April rally also marks the end of the strongest "six-month span" of the year that starts in November. The market then has a seasonal tendency to weaken from May to October. Hence the expression "sell in May and go away". That makes April a logical time to do some selling as well. That's why I ended my February 4 message by writing "If the market does move to new high ground, my best guess for a top would be April".
