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Larger Degree Pullback Coming, But No Market Top Likely YET

 -- Published: Tuesday, 27 June 2017 | Print  | Disqus 

By Avi Gilburt

While the market is searching for a top before the next larger pullback begins, I have no indications just yet that such a top has been struck.   But, I still believe we will revisit the 2300SPX region before we begin the next larger rally phase towards 2600SPX.

After we struck a new all-time high on June 9th, and then reversed strongly, many were convinced that the market had struck a major top.   However, since the high struck that day was a 3-wave structure, it made it more likely than not that we would see a higher all-time high before any significant top was struck.   As we have seen, that perspective turned out to be quite accurate.

However, we are now in a similar position.   The high struck on June 20th was also completed as what counts best as a 3-wave structure.  For this reason, I still think that a higher high is sitting out there over the next week or so.  While my preference is that any higher high struck is only the completion to wave v of 3 in the larger degree wave (v) of (3) off the February 2016 lows, the closer we get to 2500SPX, the higher the risk we run that wave (v) of (3) completes, and that wave (4) takes us back towards the 2300SPX region.

Yet, what the overlapping structure is saying to use is that the market has run too far too fast.  That is often why we see diagonals at the end of a market move.  It suggests that much of the buying has been spent in the prior 3rd wave and that consistent buying is waning.     

Unfortunately, due to the structure with which we have been dealing since April, the pattern up into the current region has the potential for several interpretations, with the one I have on my chart most aligning with Fibonacci Pinball, at least in my humble opinion.  The ideal structure I have been following still has me looking for at least one more higher high (and preferably two more) as long as we remain over our upper support region in the 2410-2427SPX region, to complete waves 3, 4 and 5 of wave (v) of (3).

A break down below 2410SPX makes me view the structure as potentially still needing a higher high in a larger ending diagonal for wave (v) of (3), or having already completed that pattern in a shortened format.  But, as I explained in prior weeks, I really would rather see us coming much closer to the 2500SPX region before I am comfortable that wave (v) of (3) has completed. 

But, since we are approximately within the last 50 points before we strike our ideal target for wave (3) set long ago, it is probably best to avoid any aggressive long-side plays, since the downside potential represents 140 points lower from where we closed on Friday.

See charts illustrating the wave counts on the S&P 500.

Can Bonds Rally To New All-Time Highs?

Since the Fed increased rates in December, the bond market has been rallying.

Many have told me that the Fed controls all markets. Many have told me that you cannot fight the Fed. Many have told me that the Fed controls the bond market.

My question is if anyone has told the bond market this?

The Fed has now increased rates 3 times since December of 2016. So, if the Fed truly controls the bond market, and if the Fed truly controls the direction of interest rates in general, doesn't that mean that overall rates should be rising?

Well, the bond market does not think so. Since December of 2016, the bond market has been rallying, as can be seen in the attached chart below of TLT. Yet, the Fed has raised interest rates 3 times during this rally.

Yes, I know the Fed does not set long term rates. But, can we reasonably accept such a divergence between interest rates and Fed action? Or, is it that the Fed really does not control the market to the extent so many believe?

Personally, I do not believe in the omnipotence of the Fed, and I think that the 2020's will likely open many people's eyes to this fact. The reason I say this is because I foresee a major stock market correction which can wipe out 50% of the stock market value in the mid to late 2020's, yet I also believe we will see a continued rise in interest rates, despite the Fed's likely attempt to lower rates to fight the deflationary trend I expect. So, yes, my expectation is for a rising yield deflation years from now. And, that is the environment where many will eventually recognize the lack of control the Fed has on the general markets. Unfortunately, many will not recognize the Fed's lack of omnipotence until it is too late.

I view the 128.40 region as resistance in the TLT. As long as the TLT maintains below that resistance level, I believe there is a strong set up to see lower lows in the TLT. However, if the market is able to move strongly through that resistance region, it does open the door to testing the all-time highs in the TLT. For now, my expectation is that the 128.40 region will keep this rally in check.

However, if 128.40 should be strongly broken, then we will likely rally back towards the 137 region. But, again, that is not my expectation at this point in time.

See chart illustrating the wave counts on the TLT.

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of (, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

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 -- Published: Tuesday, 27 June 2017 | E-Mail  | Print  | Source:

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