Market News & Analysis

Top Story

SP500 answers the key question

“We are going to see economic data for the second quarter worse than anything seen.”

Lots of takeaways from the overnight session for traders in Asia to mull over today, including the beauty above from Federal Reserve Chairman Jerome Powell following this morning’s FOMC meeting.

Despite this, U.S. stock markets surged higher, partly boosted by “hope” that a COVID-19 vaccine might be available before yearend and partly by a commitment from the FOMC to use its “full range of tools” to support the recovery.

As regular readers might recall, we moved from a positive bias in the S&P500 to a more neutral bias in an update 10 days ago here when the S&P500 was trading just below the wave equality target near to 2886.

“Given the “easy” part of the S&P500s recovery is now behind us we take this opportunity to move to a more neutral stance.”

This was to allow more time for the price action to develop and to assist in answering the most important question in markets right now - have equities entered a new bull market or are they in the midst of a bear market rally?

The overnight rally in the S&P500 goes a long way to answering this question within an Elliott Wave framework which attempts to provide a longer-term perspective of the entire market cycle. The key to this is whether a market is trending (five waves) or counter-trend (three waves).

As the chart below illustrates the rally from the March 23rd, 2174 low has now unfolded in a clear five wave following a three wave decline from the 3397.50 high to the 2174 low. The appearance of a five wave movement after a three wave decline suggests the medium-term uptrend has returned.

Keep in mind that after this five wave rally is completed, a pullback is likely before the uptrend resumes. In this context, our preference in coming weeks is to buy countertrend/corrective pullbacks, looking for a retest and break of year to date highs.

S&P500 answers the key question

Source Tradingview. The figures stated areas of the 30th of April 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.