The bear market of 2022 in the S&P 500, the U.S stock market, has raised questions about whether a bull market has begun. Confirmation of a bull market requires a study of various weight of evidence available on the price chart of the S&P 500 Index. In this article, we will undertake a study of weight of evidence from the price chart of the S&P 500, using different parameters.
Methodology
The method adopted to confirm whether a bull market has begun is based on the fulfillment of five parameters. If out of these five parameters, three parameters are fulfilled, it is considered that the trend reversal has taken place and a bull market has begun.
The Five Parameters
- Market Structure: It is important to observe the market structure based on the Dow Theory. The market structure should be higher highs and higher lows.
- Reversal Chart Pattern: The presence of a reversal chart pattern and a breakout of that pattern is considered.
- Moving Averages: The overall structure with respect to the moving averages and the slope of moving averages is checked.
- Retracement Analysis: Retracement analysis is done to find Confluence with respect to the retracement on the price chart of the S&P 500.
- Rule-based Confirmation: A market has to recover at least 20 percent from the bottom it has made during the bear Market by 20 percent.
Analysis of the S&P 500
- The thumb rule criteria of the market recovering by 20 percent has not been achieved yet. However, this criteria is given less weightage.
- The market structure has become higher highs and higher lows, which is a welcome change. The price Consolidated well in a particular zone, indicating a typical re-accumulation phase.
- The slope of EMA 21 and EMA 55 are inclining up, and the long-term moving average like SMA 144 has started rising. This is indicating a very important signal towards the trend reversal in the S&P 500.
- The price has closed above SMA 200, which is a very significant signal. However, it has earlier closed above SMA 200, but at that time, the slope of SMA 144 was inclining down.
- The presence of a reversal chart pattern such as the head and shoulders pattern confirms the trend reversal.
Conclusion
The analysis of the S&P 500 based on the five parameters, indicates that the trend reversal has taken place, and a bull market has begun. The weight of evidence from the price chart of the S&P 500, supports this conclusion. However, it is important to keep monitoring the market to confirm the trend reversal.
