Market Milestones: Cautiously Long

The last Market Milestones focused on the bearish warning signs within this overall bullish market. Since that Milestone was written last Thursday evening, the market has gone up 2% due to the semiconductors finally rallying. The RLT Newsletter entered MU at the lows on Monday morning and is still long the QQQ from an early September entry. The market broke out of a 14-day consolidation period on Wednesday, solidifying $565.00 as a key support level to watch. As long as the SPY remains above that key support, it should continue pushing into the upper trend lines from $580.00-$600.00.

SPY

However, every wave count that makes sense right now, within the rules of Elliot Wave, suggests that the SPY is in the 5th and final wave of the bull market that began in October 2022. This doesn't mean the market is going to crash tomorrow, but it does mean that this move is closer to an end than it is to a beginning. If you're familiar with Elliot Wave theory, you know that 5th waves can either truncate or extend, making them a risky part of the move. In other words, this final wave could be almost over, or it could just be starting its final push, which could last well into 2025.

In the chart below, you can see a diagonal pattern forming since the August low. This diagonal could be a leading diagonal, which would be the first wave of a larger 5th wave. Alternatively, it could be the entire fifth wave in a leading diagonal and the culmination of the last 500 days of price. How the market corrects and which levels hold will help us understand what is unfolding.

SPY

Let's review a few things that indicate we are on the right track with this Elliot Wave count. We can see that the 3rd wave of this move ended almost exactly at the 300% extension of the 1st wave. Given that the 3rd wave was extended or elongated, this lines up perfectly. We also observe that the strongest parts of the entire impulse move were the wave 3 of 3 (November 2023 - March 2024) and wave 5 of 3 (April 2024 - July 2024), which is exactly what you'd expect to see in a classic impulse move. Additionally, we see that wave 4 retraced wave 3 between 23.6% and 38.20%, which are standard 4th wave correction depths.

Another key observation is that wave 2 was messy, overlapping, long, and complicated. According to the rule of alternation, this suggests that wave 4 should be fast, violent, and uncomplicated, which it was. These factors check a lot of boxes, and each box checked increases the probability of the wave count being correct and continuing to play out.

DIA

While the SPY has been forming an ascending wedge pattern for the last two months, the DIA has been forming an expanding triangle for the last six months and is currently struggling against the overhead trendline resistance. Like the SPY, the DIA has been pushing higher with RSI divergence and decreasing volume. This pattern on DIA suggests that a 7% drop to the lower trendline is the minimum drop to be expected if this pattern continues to unfold. To negate this pattern, the DIA would need to gap up and continue higher, holding the old resistance trendline as new support. If the support at $418.00 breaks, that will be the first warning that further weakness is ahead.

Of course, things can always change, but until they do, I will remain cautiously long.