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Buying S&P 500’s Breakout? Too Late.

The S&P 500 just climbed to a new all-time high above 2138. Obviously the bulls are back, but you may have heard that joining the bulls near record highs is rarely a good idea. If you are banging you head in the wall for not buying the dip five months ago, you are probably not alone. After all, you had to be crazy to go long the S&P 500 in February, while it was trading close to 1800 and everyone was afraid that a new bear market has begun. How could you know, right?

Well, following the news and other people’s opinions was surely not going to prepare you for the bullish run, which followed. Instead, if you were one of our premium clients, who trusted the Elliott Wave Principle, the S&P 500’s current levels are no surprise for you, because you received the following weekly chart on February 8th, 2016.
sp500 weekly
As visible, Elliott Wave analysis was preparing us for new all-time highs five months ago, when the market was trading around 1879. This chart was everything we needed to see the buying opportunity the S&P 500 was offering. Trends move in five-wave sequences, called impulses. In February, the market’s fifth wave was still missing. In addition, wave (IV) was already touching the support area of wave IV of (III).

And if that is not enough, the lower line of the wave (IV) corrective channel and the lower line of the rising trend channel were forming a support cluster, which further confirmed the bullish expectation. In other words, it was all in front of our eyes on the chart. With the correct interpretation, anyone could have predicted the return of the bulls in the upcoming months. Here is how the updated weekly chart looks like today.
sp500 weekly update
As expected, wave (V) eventually climbed to new highs. Okay, but before rising sharply up, prices fell to 1807. If you were to rely only on the weekly charts, trading was going to be very hard. That is the reason why we always include smaller time-frames in our premium analyses, so our clients know what to expect in the short-term as well. For example, the premium analysis we sent them on February 8th, 2016, contained the daily chart below.
sp500 daily zig-zag 2
Going deeper into the details, the Elliott Wave analysis suggested one last wave to the south should be expected to reach a new low in the 1800s area to mark the end of wave (IV), followed by a strong bullish reversal for the start of wave (V) up. Multiple time-frame analysis is one of the trickiest aspects of wave counting, but as the S&P 500 updated daily chart below shows, if properly done, it gives great results.
sp500 daily update
So, the time to confidently buy the S&P 500 was five months ago, near the bottom of 1807, not today, when the index is trading in the vicinity of 2140. If you are going to wait for things to become “obvious” again, we are afraid you might miss the next major move as well. And this time, in case you are planning to buy the recent breakout, it could turn out to be a costly mistake.

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