Reaching the top on Elliott Impulse Wave
The potential upside for SPY could be around 1% to 2.5%, pushing it to the 590-600 range. However, with the market in overbought territory, signs of an ABC correction are starting to emerge.
This correction could lead to a 5% to 10% decline, potentially stretching into the next year. Despite two years of strong bull market gains, we haven't seen a significant correction, which feels overdue, particularly with the euphoria around AI investments. While I hesitate to call it a "bubble," it's not on the same scale as the dot-com bubble, as many of the companies leading in AI are established tech giants rather than startups. However, it's still unclear how much revenue these companies will generate from AI in the short term, though Meta is already seeing some returns, while others are likely to see results in two to three years.
A further risk could stem from geopolitical tensions between Israel and Iran, which are closer to war than ever. If conflict escalates, Iran could block the Strait of Hormuz, which handles about 20% of global oil traffic. This would drive oil prices higher, pushing inflation up and potentially leading the Fed to raise interest rates. As of now, the market hasn't even priced in the possibility of a limited or retaliatory strike from Israel, which seems increasingly likely.
Lastly, I don't believe this will mark the end of the bull run or push SPY into bear market territory, as there are still solid data points supporting the economy. Hopefully, a small correction occurs, which would be healthy, and we avoid any major geopolitical fallout.
This correction could lead to a 5% to 10% decline, potentially stretching into the next year. Despite two years of strong bull market gains, we haven't seen a significant correction, which feels overdue, particularly with the euphoria around AI investments. While I hesitate to call it a "bubble," it's not on the same scale as the dot-com bubble, as many of the companies leading in AI are established tech giants rather than startups. However, it's still unclear how much revenue these companies will generate from AI in the short term, though Meta is already seeing some returns, while others are likely to see results in two to three years.
A further risk could stem from geopolitical tensions between Israel and Iran, which are closer to war than ever. If conflict escalates, Iran could block the Strait of Hormuz, which handles about 20% of global oil traffic. This would drive oil prices higher, pushing inflation up and potentially leading the Fed to raise interest rates. As of now, the market hasn't even priced in the possibility of a limited or retaliatory strike from Israel, which seems increasingly likely.
Lastly, I don't believe this will mark the end of the bull run or push SPY into bear market territory, as there are still solid data points supporting the economy. Hopefully, a small correction occurs, which would be healthy, and we avoid any major geopolitical fallout.
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