S&P 500 could rally to 7,700 before summer weakness

As you know, we had been calling for consolidation on the S&P 500 during June based on the seasonal pattern. But if you now look at July, history shows that when stocks consolidated in June, they often broke higher during the middle of summer before another consolidation phase developed in August and September.

Now, if we combine this seasonal pattern with our Elliott Wave count, we can see a pretty interesting setup. The S&P 500 is currently testing the trend line resistance connected from the June highs, and we think this trend line could be broken, allowing for more upside in the near term, possibly towards the 7700 area.

However, 7700 could become a very important resistance zone, especially if we consider that the market may start consolidating again during August. In our view, this could happen after a wave B rally as part of a larger flat correction.

One of the reasons why we think wave four could become more complex after new highs are reached is because it's very rare to see wave four take less time to unfold than wave two. Also, look at the structure of wave two—it was a complex and overlapping W-X-Y correction. If we apply the Elliott Wave rule of alternation, it's very possible that wave four this time will form a flat correction instead.

If we see a decline towards the end of the summer, then the 7200 to 7100 area could become a very attractive support zone for the market to stabilize before the larger uptrend resumes.

So the bottom line is that we could still see more upside in the short term, but once the market reaches fresh all-time highs, especially towards the end of July, that's when we should become much more cautious about a potential slowdown and another corrective phase.