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S&P: 40% down?
2020-06-12 • Updated
We are seeing now a retrace in the S&P – the decadent mood is once again reigning in the stock and Forex market. Investors are fearing the second wave of the virus and all other evils to come. Reasonable enough though – that is all out there among the possibilities, so the earlier the market factors in those disappointments, the better. But let’s make a purely technical analysis of the S&P and see if we can find a pattern.
On the below daily chart the recovery of the S&P after the disaster of February-March may be divided into three waves.
The first one started when the bottom was finally hit at 2,180 and peaked at 2,630 making a 450 points leap. After that, it retraced 180 points down to 2,450 erasing 40% of the gain. That is when the second bottom was being discussed – the people would not believe bulls would be powerful enough to sustain the upside.
The second wave launched at 2,450 and reached 2,960 making a 510-point leap. Then it erased 190 points dropping to 2,770 which is also nearly 40% of this wave. That is when observers were discussing the 50% level and were more confident there would be further rise although those professing the second bottom were still heard.
The third leg launched at 2,770 and peaked recently at 3,230 making another 460-point leap. As it was a complete recovery of the virus damage resulting to be a V-shape, observers got scared that it was too quick, too good, too unbelievable. Eventually, we are now at roughly 3,100. Is that it?
If the “methodology” behind the S&P’s movement stays, we are likely to see a 40% reduction of the leap that was made just like it appeared in the first two waves. In this case, we are likely to bottom out at 3000-3050 and then another wave up will launch. Let’s watch for the signs of a bullish reversal then and check that 40% down.
P.S. If those waves keep the pace, then the coming bullish leg will launch at 3000-3050 and make around 450 points upwards. That should complete in a couple of weeks so the end of June will show how precise our estimation is.
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For those who may be unfamiliar with Price Action trading, the horizontal arrows represent areas where the market structure was broken. As you can see in the scenario above, price broke below the previous low at the two marked instances
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