According to the Elliott Wave, the government shutdown does not impact the stock markets

Over the past several updates, we have been tracking a rally to SPX 6690+/10, from which we expected a 3-5% pullback before the next rally to approximately SPX 7120 would materialize. The index topped at SPX 6699 on September 23, dropped to SPX 6569 on September 25, and is now trading in the low 6700s. Thus, although the 2% pullback was shallower than expected once again, the Elliott Wave Principle led the way, keeping our newsletter subscribers on the right side of the markets throughout.

Now, the question on everyone’s mind is whether and how the first government shutdown since 2018 will affect the markets. Spoiler alert: not at all. It moves at its own pace. Due to a smaller pullback than expected (2% vs. 3-5%), we reconsidered the price action and found that the gray Wave-v of green W-3 is subdividing, starting on August 20th instead of September 2nd. See Figure 1 below.

Figure 1. Our preferred short-term Elliott Wave count

Since all we can do is “anticipate, monitor, and adjust if necessary,” it means we are critical of ourselves and correct any interpretative mistakes that may have been made. And since we’re only human, some mistakes will always be made. We learn from them and move on. This allows us to stay flexible and adapt to the ever-changing market, while those who remain rigid in their beliefs will not survive.

With today’s new all-time highs (ATHs), we interpret the current rally from last week’s low as the orange W-5 of the gray W-v of the green W-3. The SPX 6699 high was significant, but it was “only” orange W-3. Since 5th waves usually target the 200% Fibonacci extension of the length of the first wave, measured from the second wave low, the SPX 6776 level now acts as a magnet, which is also near the one wave-degree higher (green) 300% Fibonacci extension at 6815. Therefore, SPX 6800 ± 25 becomes our next target. See Figure 2 below.

Figure 2. Our preferred long-term Elliott Wave count

Once reached, the odds increase that the market may see a 3-5% correction again, with a green W-4, and an ideal target zone of SPX 6150-6375, with the upper end preferred. From there, we expect the final rally to reach approximately SPX 7120, completing the Bull that started in 2022.

The warning levels for this wave count, which have consistently helped our newsletter members stay on the right side of the markets by enabling us to remain long with minimal concerns, have been raised as the SPX moved higher. They are now set at: first at 6664 (blue, 25% chance that the gray W-v is over); second at 6644 (gray, 50% chance that the gray W-v is over); third at 6604 (orange, 75% chance that the gray W-v is over); and fourth at 6569 (red, W-v is definitely over).