Chart 1 below illustrates the bears' technical thesis using the classic Elliott Wave Theory (EWT). As shown on chart 1 below, the decline appears to sport a 5-wave look. However, I know from having encountered this pattern hundreds of times that double and triple zigzag patterns, which are corrective by nature, are often confused for 5-wave impulsive structures that usually portend a trend reversal.
The premise of EWT is that whenever a 5-wave impulse occurs, it practically guarantees that at least another 5-wave impulse will eventually follow in the same direction, but not before a countertrend rally takes place. Therefore, according to EWT practitioners, the summer swoon unfolded as a 5-wave structure that was followed by a 3-wave countertrend rally that began in October.
To the bears' dismay, this thesis has just been invalidated upon the DJIA breaching last year's high. According to EWT, wave (2) CANNOT under any circumstance exceed the start of wave (1). It's an INVIOLABLE rule! Since the S&P 500 sports a very similar structure to that of the DJIA shown in chart 1, I predict the former will soon achieve the same feat by exceeding its May 2nd high. Furthermore, what looks like an ABC zigzag in wave (2) will eventually evolve into a 5-wave structure.
Chart 1. The DJIA just dealt a blow to the bears by excceeding last year's high.