JPMorgan: Bull market still alive, rebound ahead

Published Thu, Sep 3 20153:17 PM EDT

As the battle between the bulls and the bears heats up over the direction of this six-year bull market, charts of the S & P 500 index are flagging a potential rebound ahead, according to a JPMorgan chart analyst. After moving sideways for most of the year, the S & P 500 broke below its trading range last month, dipping into correction territory for the first time in four years, down more than 10 percent. The rapid drop, however, was quickly followed by a rally of 6.7 percent from the double bottom at the 1,867-level hit in late August, leaving the index right in the middle of the major support and resistance parameters, according to the top chart analyst. "We think the market has already realized the bulk of the medium-term correction from the 2,135 May peak," said JPMorgan's Jason Hunter. "We came into the year expecting a broad and volatile range to trace out an Elliott fourth-wave consolidation pattern," he added. The Elliot Wave Principle is a method of technical analysis that market watchers use to track long-term financial market cycles using a natural sequence of numbers. Source: JPMorgan Based on that analysis, Hunter explains that the outcome of the recent market selloff is consistent with the 10-15 percent corrections seen during the years 1984, 1994 and 2004, which priced in the uncertainties associated with looming rate hikes. "The same Elliott count structure that helped forecast the correction in 2015 should yield a rally and continuation of the broader bull market in 2016," according to Hunter. Read More Goldman: Market rally likely ahead. What to buy The technical strategist says bearish signals like the S & P's close below the 20-month moving average in August and the "death cross" formation are indicative of the "slowing" longer-bull term trend, but not the end of it. "We waited for a 10 percent drop from the 2,135 peak and an extremely lopsided sentiment condition for global risk appetite before flipping from a negative to a more constructive medium-term outlook," noted Hunter. He predicts that even if his long-term view proves to be incorrect, there's a good probability that a multiweek or even multimonth rally materializes due to the oversold conditions. To be sure, Hunter expects more market volatility ahead, which could cause intermediate declines toward the 1,820 October 2014 low, but those dips are likely to be "short-lived."

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After moving sideways for most of the year, the S&P 500 broke below its trading range last month, dipping into correction territory for the first time in four years, down more than 10 percent.

The rapid drop, however, was quickly followed by a rally of 6.7 percent from the double bottom at the 1,867-level hit in late August, leaving the index right in the middle of the major support and resistance parameters, according to the top chart analyst.