Most often, markets will “correct” by dropping in price after a rally is seen, which we call a correction in price. But sometimes they simply move sideways, which we then call a correction in time, as opposed to a correction in price. While I still do not have confirmation that this is the case currently in the equity markets, the upcoming week may provide some answers. If we have completed the correction in time, then the coming week will begin our trek toward the S&P 500
I want to again remind you of our expectation that we have maintained since the end of January 2016 for a global melt-up in many asset classes, even in light of everyone around us calling for a market crash. Specifically, we have been looking for a very long-term bottom in emerging markets and metals, along with an intermediate-degree bottoming in the U.S. equity markets. Thus far, 2016 has played out as expected, and quite profitably.
However, for the last several months, we have been patiently waiting for the S&P 500 to provide us with a pullback in what we are considering wave ii of wave (3), with wave (3) targeting the 2500 region, which is the 1.618 extension of waves (1) and (2). While I had ideally wanted to see a larger pullback in the market before we began that move up in the heart of wave (3), I want to highlight the modified blue count on the 60-minute chart, which would point us right toward that target for wave v of (3) in the current i-ii blue count setup.
While I would still prefer to see the standard pullback we normally see under these circumstances, as represented by the green count on the chart linked below, if the market decides to break out through our resistance region toward the 2230SPX region before we see the ideal pullback to lower levels, I believe any ensuing pullback in the blue wave 2 can be bought with a stop just under the 2180SPX region. This means that one should not fight the market if it should choose to break out before it breaks down, especially since the long-term bull market must be respected.
Ultimately, this market has a setup to rally to the 2537-2610SPX region we set out as our target long ago. The only question with which we are still grappling is how the smaller-degree count lines up within the larger-degree count. This will all depend on whether we see the bigger pullback for which we have been awaiting patiently for two months, or if the shallow “correction in time” we have experienced over the last two months will be all we get.
As long as we remain below the resistance noted on the charts linked below, I will still give the market the opportunity to provide us with the lower levels we want to see for the ideal pullback. But I am not sure the market is going to have more than the upcoming week to finally give us the bigger pullback we have been eagerly awaiting.
See charts illustrating the wave counts on the S&P 500.
View more information: https://www.marketwatch.com/story/what-it-means-to-get-a-correction-in-time-rather-than-price-2016-09-06