Traders work on the floor of at the closing bell of the Dow Industrial Average at the New York Stock Exchange on October 31, 2018 in New York.
Heading into November, J.P. Morgan's chart analyst says if the S&P 500 can consistently stay above a key level, the market has a shot of recovering last month's losses.
"After a couple failed attempts to rebound from a bullishly developing technical setup last week, this week's move tentatively has more staying power," J.P. Morgan technical market strategist Jason Hunter said in a note to clients Thursday. "The technical pieces that helped identify bullish reversals after past late-cycle corrections are all present."
Sustained closes in S&P 500 above the 2,700 area "would add conviction to the medium-term outlook," Hunter said, predicting that the market will "break to new highs into early 2019."
Another J.P. Morgan Chase strategist, Marko Kolanovic, also predicted a comeback for the markets this week. In a note to clients Tuesday, Kolanovic said a "short squeeze," due to repositioning by hedge funds and other active managers, could allow equities to undo October's market damage.
Investors capped off a volatile month with a strong two-day rally this week. Still, the S&P 500 lost a total $1.91 trillion in October, according to S&P Dow Jones Indices analyst Howard Silverblatt. It was the worst month for the S&P 500 since September 2011, with losses spread across sectors.
The correction proved to be "more dynamic" than J.P. Morgan had originally anticipated, Hunter said. Despite that, the "nature and even amplitude" of the move still fits firmly within the framework laid out in J.P Morgan's 2018 outlook, which predicted equity index corrections and "potholes."
"We feel strongly that this is a late-cycle correction and not the start of a protracted bear market," Hunter said. "Despite what appears to be a sloppier reversal pattern than we had anticipated, the rebound from the 2,603 Oct 29 low, opening bull gap, and lift through the 2,710 Oct 11 low provides the first evidence that the bottoming process is starting to take hold."
