It was a huge week for the Bulls! Fortunately we caught the majority of the weekly gains and we’re in a great position to capture any further gains, as long as this rally lasts. For the week the C fund was up 3.26%, S fund up 4.40%, I fund up 2.69% and F fund up 0.38%.

This was a very significant week in terms of the Elliott Wave structure. It gave us clarity between the 2 possible short term counts that we have discussed in the past several newsletters. Wednesday’s close above 4175 on the S&P500 invalidated our possibility #2. With only one possibility remaining, it should be pretty easy to anticipate the market going forward from here right??…

In the short term, yes. It’s pretty easy to see where the market is going over the next week or two. We will get into that in the short term chart below. The long term is still in question…

Long Term

Below is the long term chart of the C fund back to 2009. The 5 wave count from 2009 to 2022 is the technical analysis (TA) industry standard. If you look at any TA website or periodical, virtually all of them are in agreement with this count. The majority also agree with the a-b-c correction count post 2022. The only variation is how low wave C actually goes.

In this count, the best case scenario is that wave C ends at the up sloping trend line. In this case, the long term bull market that began in 2009 is still in place. IF this best case scenario were to play out, price still has a long way to go to the downside.

Much more likely is that price corrects to the 61.8% retracement level at 2250. This would be an overshoot to the downside that would offset the overshoot to the upside post Covid. Either way, the current a-b wave that we are currently enjoying is not likely to last for long…

For the sake of the argument, is it possible that the low in June (a) is the low of this Bear Market. Is it possible that we could just keep going to new highs from here? Anything is possible but it is certainly not probable. What evidence in the chart supports wave (a) being the final low of this bear market? Price found support at the 23.6 Fibonacci retracement level and the AAII bearish reading at the June low was greater than the Covid low or the 2009 low. Those two data points support that the low is in at the June low (a). Because of this we need to keep an open mind to this possibility. Having said that, in the larger Elliott Wave count, a low at wave (a) being the final low is extremely unlikely.

Short Term

The short term gets tricky. Our A-B wave in the chart above ultimately needs to play out in a 3 wave corrective move. Coming off the June low, price is carving out a 5 wave impulse move to the upside. That means that once the 5 wave from the June low is complete, the next move should be a 3 wave correction, followed by another 5 wave move to the upside, completing a complex corrective pattern to the wave 1 down from the January highs.

What this count implies is that markets are likely to be extremely difficult to navigate through the end of the year and into 2023. This “forecast” is pretty consistent with economists expectations going forward. 2023 is shaping up, potentially, to be a much worse year for the market than 2022…

As always, we use Elliott Waves as a guide. There are very successful people who trade on Elliott Waves alone. I prefer to use Elliott Waves as a guide but make reallocation decisions based on technical analysis of the price charts.

Very Short Term

This is how I would like to see the current rally play out. I would like to see the 3 wave complete at the 61.8% retracement level. We should then get a wave 4 down to support at the 20DMA line before a final wave 5 to complete wave A. There are no guarantees and price will drive decisions but, this is what I expect to see over the next several weeks.

Bottom Line

We are in a Bear Market Rally. There is very little doubt about that. Is it possible that the final bottom is in and we will go to new all time highs from here? Yes, that is a possibility but it’s not very likely. I’m open to the possibility but not betting on it…

In the short term, we are in rally mode! Let’s get as much of the gains as possible but be ready to protect those gains as wave A completes.

The news is likely to get better as the rally continues into the wave A top. Don’t let that distract you!! Stay in the trade as long as the market is moving higher. Our goal is to be on the right side of the market.

For the purposes of TSP, I have used 2 reallocations for the month. I can only reallocate to the G fund until September. Knowing that, I want to see a confirmation of a completed wave A before reallocating to the G fund. A close below the 20DMA and below 50RSI will be that confirmation.

Stay alert. The next several months are going to be exciting!

Have a great week.

Jerry