What Next For S&P 500 Per Our Analysis Of 2022's Countrend Recovery Rallies?

Tuesday, October 4, 2022-- Mptrader Pre-Market Update: What a difference a day makes!  ES has climbed 189.75 points and 5.3% in less than 24 hours, which represents a powerful upside thrust from acutely oversold conditions after establishing new unconfirmed multi-month corrective lows.

What now? My attached 4-hour ES Chart shows ALL of the price action from the ATH established on January 4, 2022 into this AM's pre-market action. I want us to focus on two main aspects displayed on the chart: 

1) The bright blue boxes demarcate each of the FOUR INITIAL UPSIDE THRUST from deeply oversold conditions during the 2022 bear market, which registered percentage gains of 7.7%, 10.3%, 8%, and so far 5.3% off of yesterday's low, suggesting strongly that IF the current upside reversal from oversold conditions (arguably from the deepest oversold condition of the bear market) approximates the prior three events, then during a 6 to 8-day timeframe starting yesterday, ES will gain a total of 8% to 10%, and from this AM's high at 3761.50, an additional 3% to 5% or to a potential target window of 3875 to 3950 prior to the conclusion of the INITIAL oversold thrust period.

2) Next let's focus on the Dark Red horizontal boxes atop each of the prior two Recovery Rally Highs during 2022, March, and August. The amplitude of the recovery percentage represented 76.2% at the 3/29 Recovery High, and 69.3% at the 8/16 Recovery High. If the profile of this bear market remains intact, then the recovery rally that started yesterday at a low of 3571.75 has the potential to recover as much as 80% of the August-October downleg, which projects an upper target window in the vicinity of 4180 to 4200 prior to upside exhaustion. 

To recap three salient points of this exercise: 

1) the initial thrust off of an acutely oversold condition during 2022 counter trend recovery rallies have approximated 8% to 10% gains within a 6 to 8 session timeframe, and thereafter...

2) ... bullish recovery tailwinds have extended and propelled the index for an additional 4 to 7-week period to recapture about 75% of the prior downleg... and finally...

3) ... after BOTH strong recovery rally periods, ES pivoted to the downside into a decline that pressed to new lows within the dominant bear trend... 

If this recovery rally is similar to its 2022 predecessors, then the current ES rally that started yesterday has legs into next Monday-Wednesday prior to the onset of a possibly deep give-back of the initial vertical gains, but thereafter, generally constructive tailwinds have potential to support a grind higher towards 4180-4200 possibly into early-mid-November... MJP

10 04 ES 4 Hr 730 GIF
10 04 ES 4 Hr 730 GIF

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