S&P 500 bulls had a terrible October. The index was down 11% at one point, but managed to minimize the damage and finished the month down 7.3%. November, on the other hand, is looking a lot better, following a recovery of almost 100 points in the first seven days.
President Trump’s reported request for a trade deal with China (Nov. 2nd) and the results of the mid-term elections (Nov.6th) are among the reasons big media attributes this rally to. What is interesting though, is the fact that both became known after the S&P 500 flashed its first bullish signs.
Our subscribers received the following chart as a short-term update on Wednesday, October 31st, when the index was still at 2683.(some marks have been removed for this article)
The 30-minute chart of the S&P 500 revealed that the sharp plunge from 2941 to 2603 was a five-wave impulse pattern. According to the Elliott Wave Principle, which is our preferred method of technical analysis, a three-wave correction in the opposite direction follows every impulse.
An Elliott Wave Setup Inspires S&P 500 Bulls
Here, an impulsive decline was supposed to make way to a recovery towards the resistance of wave 4 near 2800. In addition, there was a bullish MACD divergence between waves 3 and 5, which gave us another reason not to join the bears below 2700. A week later, the updated 30-minute chart of the S&P 500 looks like this:
The price reached 2815 yesterday. Joining the bears might have seemed like the only reasonable option to traders not familiar with the Elliott Wave principle, especially after October’s bloodbath. Just the opposite was true.
The market may seem random and chaotic at times and we admit no-one knows what is going to happen at all times. It is also true, however, that recognizable patterns emerge from time to time, tilting the odds in favor of traders, who know what to look for.
What will the S&P 500 bring next week? That is the subject of discussion in our next premium analysis due out on Sunday!