The U.S. stock market has entered a ‘topping’ zone

Several years ago, we set our target for the S&P 500 Index to between 2,537 and 2,611.

While it may not seem like a stretch of the imagination today, consider that the stock market was at around 1,800 at the time, and most market participants were awaiting some type of crash. In fact, we maintained our strong conviction for the S&P 500

SPX, +0.18%

 to rise to 2,500-plus points no matter who won the election in 2016. And the fact that Donald Trump won and stocks still rallied, despite most expectations to the contrary, supports our big-picture perspective.

But now we are in what we consider a “topping” zone. While the market can still push higher by another 50 points or so, I think we will be starting a multi-month pullback as we move into 2018. So my expectation remains that we are completing the final segments of wave (3), as you can see in the charts below. And as long as we remain over the 2,511 support region on the next pullback, the market will likely try to push up to our next long-term target in the 2,611 region.

I have also attached my long-term chart on the S&P 500, below. For those who recognize it, you will know it has been an excellent road map for the U.S. stock market. In fact, while many were calling for the “crash” back in early 2016, this chart was pointing straight up toward the 2,500-plus region.

Ultimately, this chart suggests that we will not likely see a 15%-plus correction in the market until we complete waves (4) and (5). But, even after a 15%-plus correction, which seems to be setting up for 2019 (just in time for our next presidential election), the market will likely be heading higher into the early 2020s, and will probably eclipse the 3,000 region no matter who is elected in 2020.

So while I see a lot of frustration by market participants because of how extended this market has become, if one embraces the fact that we are still in a long-term bull market, and will likely remain in one for another five or so years, then most of your focus should remain on the “long” side rather than that ever-elusive “crash.”

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

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, foreign exchange and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.