Looks Like The Correction Is Over

Is the correction over? It looks like it. Until Friday, the correction pattern which started at 2754 could have been either accumulation or distribution. Because a logical retracement called for at least 2670, the latter was given the edge; but Friday’s action has shifted the odds to the former. We do not yet have a confirmation, although a minor buy signal was given, and SPX will have to surpass its former short-term high of 2754 by a decent margin before we have one.  

At Friday’s close, the index has reached an area of resistance (caused by several factors) which could halt its progress, at least temporarily. It also faces a cluster of small cycles bottoming in the middle of next week, and something perhaps even more important later in March. Also, the market could respond negatively to Fed chair Powell’s testimony on Tuesday. So we need to assess if we have only reached the middle of the corrective pattern, or if we’re done with it, and we’ll need another week to do so.    

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart

The overall daily SPX chart is beginning to look bullish. The correction never did turn the blue 55-DMA down (even though it was breached seriously), and the index promptly rallied above it on the rebound and stayed above the pink 9-DMA. The correction was so shallow that I expected it to continue lower; but instead, it found support on the 9-DMA and rallied sharply on Friday. Since the index never went below the top of the 2695 previous high (dashed line) which provided good support after it was decisively overcome in the rebound, it is possible that this is as deep a retracement as we will get, and that we are (almost) ready to move to a new high.  

The immediate obstacle to moving higher immediately is the small cluster of minor cycles bottoming next week. One should expect some sort of retracement into mid-week which could start as early as Monday morning. There is also the possibility of this pullback continuing for a while longer since another cycle is due mid-March. If the cycles cause enough weakness to take us below the 9-DMA again, it would delay the recovery.