The US stocks have returned upside. S&P 500 hits record high. What could happen next? The following technical analysis is based on the Elliott wave theory.
October 30, 2019 | AtoZ Markets – After the US-China meeting in Washington, the stock markets returned upside. There is now higher money flow into risk-on assets as investors tend to be less risk-averse. In this situation, when investors are willing to take risks, the stock market is one of the favourite vehicles. It’s not surprising that the S&P 500 and other US stock indices have been on the rise since the first trade agreement between the two world’s largest economies. Since October 10, S&P 500 has gained around 4.5% (+135 points) to hit a record high close to 3050. Nasdaq and Dow were also lifted by 6% and 3% respectively.
S&P 500 hits record high. How high before the next dip?
The S&P 500 has hit above the previous high recorded in July/August. The stock index is still looking very buoyant. Higher prices are expected throughout the last quarter of 2019. However, based on how this market has behaved since January, we should expect occasional dips along the way. How close is the market to a reversal zone? The chart below shows the weekly Elliott wave analysis which is a continuation of the last update.
The largest dip the market could remember happened between late 2007 and early 2019. It had a turning point at 685 and has not looked back since then. There were minor dips on the way, the biggest in the last four months in 2018. Clearly, a bullish impulse wave is close to completion. Wave (v) could, however, continue for many more months and hit higher highs on the way. Using the Elliott wave Fibonacci projection methodology, we could say that the next target is 3292 where we will have the 100% projection of wave (1)-(3) from (4). Around the 61.8% projection level (2725), the market reacted with sharp declines first in January and later in October 2018. Wave (5) is also emerging into an impulse wave with the 5th sub-wave still in motion.
Is Wave 5 of (5) emerging into an ending diagonal pattern?
As the chart above shows, wave 5 of (5) is emerging into an ending diagonal pattern. If that is correct, then the current rally is expected to be the third sub-wave which should end around the 3089-3128 Fibonacci confluence resistance zone. Price could drop back below 3000 afterwards for the 4th wave before returning upside. We will see how all these play out in the coming weeks and months. In the subsequent updates, we will look at price movements at the intraday level.