Evidence Swings Bullish

The prior blog post noted that short-term market timers had become excessively bearish, a condition that implied US stocks could be at or near a bottom.

The hourly S&P 500 (SPX) chart courtesy of Trading View illustrates a choppy decline September 2to September 24.  This appears to be an Elliott Wave Double Zigzag corrective pattern.  The clearest part of the structure is the middle portion – labeled as Minor wave “X”.  This pattern looks very much like an Elliott wave – Expanding Flat.

So far, the pattern from the September 24^th bottom looks like a clean five wave Elliott Impulse.  If so, this could be the first wave up of a larger rally that could continue until at least January 2021. 

Note that late in the trading day September 30^th the hourly Stochastic had a bearish crossover, which implies the SPX could decline over the next one to three trading days.  If the high made on September 30^th holds, the most likely area for the next bottom could be in the area of a .618 retrace of the five waves rally from September 24^th .   If the first wave up is complete, second waves frequently retrace at least .618 of the first wave. 

A break below the September 24^th bottom at 3209.50 would open the door for more downside action.

Evidence is swinging bullish: first from the sentiment dimension – excessive bearishness from short-term market timers.  Second from the price dimension – five wave Elliott Impulse.

The time dimension – in the form of bearish seasonal patterns could continue until mid-October.  Seasonal patterns are not precise and can end early.  In the next few trading days, we may know if this year’s bearish season could continue or is complete.