S&P 500: JP Morgan Is Wrong; The Worst Is Yet To Come

Dow Jones
Dow Jones

The S&P 500 index CFDs rose by more than 1% as investors reacted to a bullish note from JP Morgan. In a note to its clients, JP Morgan said that we have seen the worst of the current conditions.

In the statement, the analysts said that, “Most risky markets have probably made their lows for this recession, except perhaps oil and some EM currencies beset by debt-sustainability issues.”

JP Morgan is not the only bank calling for a bottom. Last week, billionaire Bill Ackman, who made $2.6 billion with hedges, said that he had converted his winnings to longs. Two weeks ago, analysts at JP Morgan too argued that we had seen a bottom.

I think that it is already too early to call for a bottom for three reasons. First, Trump has just extended his social distancing policy until the end of March. The period could be longer, which will lead to more damage to the economy. Even after the period ends, it will take longer for the economy to recover. Second, the energy market is reeling from the low oil prices. With most energy debt maturing soon, we will likely see some big bankruptcies. Third, while most analysts are expecting a V-shaped recovery, I expect an L-shaped one. This is where the economy drops and remains stagnant.

Read our Best Trading Ideas for 2020.

S&P 500 Elliot Wave Analysis

Another reason why JP Morgan could be wrong is that Elliot Wave is sending a different signal. On the hourly chart, we can see that the S&P 500 is in the fourth phase of its Elliot wave. This means that the index has not yet moved to the fifth wave. I expect the fifth wave to start happening now that the index has moved to the 38.2% Fibonacci Retracement level. If it happens, expect the index to move below its YTD low of $2,180.

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