The market is sending us more messages that a bottom has been struck relative to the evidence that it can potentially see a lower low, reports Avi Gilburt.
There has been more hair torn out in frustration during this rally off the Coronavirus pandemic move than at almost any other time in market history. The frustration in trying to understand this market is ubiquitous.
As the unemployment numbers get worse and worse, the market continues to rally higher and higher. In fact, the futures rallied 70 points off the overnight low struck on Wednesday night even after the negative employment data was announced Thursday morning, and then rallied another 60 points off the overnight low struck on Thursday night despite the worst employment report in history being presented on Friday morning.
As I continue to peruse public articles, I see more and more articles being published that tell everyone exactly what they already “know” as a certainty: We are setting up for a major crash in the market as we usher in the next Great Depression.
Yet, has the market not taught you that it is not driven based upon this type of reasoning? Trying to reason with the market, which is emotionally driven, is a losers’ game.
Does the market ever do what the great majority expect it to do at major inflection points when people get the most emotional? No. Yet, everyone is so certain that the market is going to crash. And, this is even after a 35% crash has already occurred. They call that recency bias, which has now been layered on top of the confirmation bias.
That emotional phenomena are why it is so hard to buy the lows when they do hit. As the SPX was bottoming towards the end of March around 2200, I thought the market to bottom and begin a rally to the 2600 region. At the time.
This was the most difficult buying I ever encountered. The fear was palpable on March 23, as we were striking the bottom of the support target.
The market is sending us more messages that a bottom has been struck relative to the evidence that it can potentially see a lower low. Ultimately, the market is going to have to complete a 5-wave rally structure back up tows 3200 in the coming months to convince me a long term bottom has been struck, which will then begin a larger degree pullback likely taking us into late summer, or fall, which should likely be aggressively bought. If the market completes 5-waves up off the March low, then it would confirm that we are going to rally to 4000+ in the coming years, with strong potential for a blow-off top to be seen as high 6000.
Much will depend upon how the market reacts this week. If futures sustain a breakout above 2942 then we are likely heading up to the 3000 to 3060 the coming week or two. However, if the market is unable to break out over that level and turns down below 2870 then it opens the door to re-test of 2700.
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.
