My preferred method of analyzing the S&P 500 and other indexes is the Elliott Wave Principle (EWP). Still, its application must coincide with classic technical analyses to determine the most likely EWP option. Otherwise, one literarily is slapping on wave labels in a vacuum.
Although “past performance is no guarantee for future results,” as is often said in this update, I will look at nine different technical items to see if – as Mark Twain once said, “History never repeats itself, but it does often rhyme.” See figure 1 below.
Figure 1. S&P 500 daily candlestick charts with several technical indicators and moving averages
Analogy With November 2021 Suggests Higher Prices Are Ahead
Since the SPX has now rallied almost 500 points since the February 24 low, I compare the current rally with the one that started in October 2021 and lasted until December 2021. I have numbered similarities between then and now. This method allows for an objective assessment of the price chart:
- The Bollinger Bands first expanded (black arrows), then the lower band bottoms bottomed, followed by a move back up, as does the index.
- The index is above the (red) 200-day simple moving average (SMA)
- The index is above the Ichimoku Cloud
- The index is above the (blue) 50-day SMA
- The index is above the (green, dotted) 20-day SMA
- The index dipped briefly and then rallied again
- The RSI5 fell shortly, but not below 50
- The MACD dipped briefly, its histogram topped, but it remained firmly pointing higher
- The Money Flow Indicator (MFI14) stayed at around 70.
Bottom Line
The S&P 500 has rallied over 500 points since the infamous Feb. 24 low. An objective analysis of the most recent rally (October-December 2021) shows there are (at least) nine similarities between then and now. Back then, the rally took a brief pause before adding ~4.5%, after which a more significant correction (-5.3%) happened.
The index took a quick break in the middle of last week and has already started to rally again. Similar to the October-December ’21 rally. Based on these nine similar technical analysis setups, odds favor the current rally should reach new uptrend highs (think SPX 4750+/-50) before a more significant correction (think back to ~SPX 4350+/-50) should ensue.)