Uptrend Resuming?

Last week, I wrote the following:

“When the rally from the 2533 low overcame the previous short-term high of 2727, it suggested that the SPX recovery could reach as high as the previous top of 2872, or even a little higher, before reversing.”

(For those of you who might have missed it, last week’s letter is available on “the Market Oracle” under “Authors Archives”.)

So far, the market is cooperating. On Friday, spurred by a strong jobs report, SPX was up nearly 50 points, closing the week at 2786.  So we appear to be on track for the above forecast; but it could be truncated by some cycles which suggest that a consolidation should take place over the next few weeks. Minor cycle lows are due next week, and larger ones around mid-April. And then, the all-important 40-wk cycle is due in mid-May. So the forecast made above could be altered by some corrective action before we get the all-clear signal for a new high.  

In addition, the rally which started on at 2660, on March 2, is likely to pause around the former high of 2789 (which is now only three points away) or a little higher; especially since we have either filled or are approaching the maximum projection for this rally phase, and negative divergence has appeared on the hourly chart.  

On the positive side, the daily indicators have returned to a buy signal, so the bulls appear to be in control for the time being and may not be inclined to give back too much ground over the short-term.  

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

SPX daily chart

We have to admit that this is a pretty bullish-looking chart. So why should we not expect prices to continue their upside progress right away? For the reasons that have been stated above in the Market Overview.  

The secondary low of 2660 (3/02) now appears to be a high-level retest of the initial low of 2533 (2/09).  From a structural standpoint, it also appears to be the start of the next up-phase in the index. Friday’s strong upside momentum is unlikely to stop on a dime, but carry a little higher into early next week before minor cycles take hold. So there does not seem to be much in the way of further progress over the near term; at best, a brief consolidation before we complete the rally phase which started at 2660 — unless the cycles bottoming (ca.) mid-April have enough pull to cause a deep enough retracement which would prevent the index from making a new high before the pressure from the bottoming 40-wk cycle become dominant.