Market Overview
After reaching the stated P&F price projection for the two-month rally which began at 1810, SPX started a minor decline which, so far, has retraced some 40 points and has found support at 2043, an important price level which was breached but not broken. Since the correction does not appear to be over, it is likely that, over the next few days, it will be and that the next important support of 2020 will be challenged. That could be the extent of this correction which, in all likelihood, is the beginning of a distribution process taking place before the primary trend — that is currently sideways but should eventually turn into a more severe decline – resumes. This is an assumption which is based on an analysis of market performance, historical patterns, cycles, etc. …
When the current correction has ended, the SPX will have a chance to prove us wrong, and some of the weekly price and breadth indicators will have to weaken sufficiently over the near future to show that our presumption is valid. The price pattern of the past few days looks more like a consolidation in an uptrend, but that could change if the decline breaks below the 2043 support steepens. Even so, the next rally is likely to re-test the recent high which not only filled a P&F projection, but also encountered heavy overhead resistance. The outcome of that test will give us more information about the market’s longer-term position. The last intermediate top took nearly two months to form. We may be ready to do something similar.
SPX Chart Analysis
Daily chart (This chart, and others below, are courtesy of QCharts.com.)
I have pointed out the similarity of the two rallies. Will it continue? After topping, the October rally retraced .382 of its uptrend, reversed and made a slightly lower high, declined again (this time to the 50% retracement level) rallied again briefly to another lower high, and finally started a downtrend in earnest. If the current pattern continues to mimic the former, an initial decline to 1974 (.382 retracement) would take place. Actually, there is P&F distribution pattern which has formed above 2020 which has enough of a count to extend the decline to that level. The potential is there, but will it be realized?
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