It is only Tuesday and the S&P 500 is already stealing the show. After the sharp sell-off on Friday, the index made a sharp bullish reversal and climbed above 2161 yesterday. Friday’s news was blaming the Fed for the crash. Monday’s news says that stocks are rising despite the Fed. Apparently, following the news is not the best way to predict and trade the markets. But was it possible to predict S&P 500’s phenomenal reversal at all?
Before the markets opened on Monday, September 12th, our S&P 500 premium clients were sent their forecast, which included the following chart.
As visible, the Elliott Wave Principle helped us recognize a simple (a)-(b)-(c) zig-zag pattern, whose wave (c), we thought, was approaching to its end. We wrote our clients that “wave (c) still has room to fall by another 20-30 points”, but “we should expect a bullish reversal in the 2100-2110 area.”
Experienced traders know that news is like an echo. It is not the reason for anything, so instead of waiting for “something good” to move prices up, we rely on what the market itself is telling us through its price charts. As it turns out, it is not a bad approach.
According to plan, the S&P 500 initially fell on Monday. It entered the previously mentioned zone between 2110 and 2100 and bottomed out at 2107.80. Before the day was over, it had already exceeded the 2160 mark. Other methods, capable of predicting violent reversals with such accuracy, probably exist. But the Elliott Wave principle is unique, because this chart is not the entire analysis. It is just a fraction of it. Wave analysis could be applied to all time-frames – from monthly and weekly to intraday charts. It allows you to see the market in its entirety and gain long-, mid- and short-term perspective at the same time. Not to mention its ability to help traders identify confirmation, invalidation and stop-loss levels. How many other methods could do that?