S&P 500: A Perfect Bounce?

A review of the S&P 500 bounce scenario

Took well earned profits on AMZN, BBRY and XLE while holding a few other well protected (via shorts on relatively weak areas) longs, including SPY.

If you ask me, a perfect bounce in the stock market would be one that goes high enough and/or lasts long enough to get former, recently bullish participants hot under the collar for fear of missing out.The sentiment backdrop, extremely over bearish near, but not quite to the level of last summer’s puke fest, would seem to indicate the S&P 500 could get back to 2000 (+/-) for a re-test of the key breakdown.A bounce that grinds its way up there over the next week or two would be optimal.

Below is the daily chart of SPX again, with everything (volume, indicators, etc.) stripped out of it. This chart is from Friday’s pre-market post at NFTRH.com, which included this:

“First, SPX has to break the Wedge. In that case, the downward spike below support would be a scout for future bear activity.Meanwhile, much will depend on incoming technical, macro and sentiment data. A bounce to SPX 2000 would be a gift for would-be bears.”

We have noted often in the past however, that the Rising or Falling Wedge is the most hyped thing in TA (this side of Golden & Death Crosses). The Wedge break below for example, in retracing nearly 38% of the 2016 decline, has already fulfilled all it is required to fulfill. On a daily chart, these are very short-term patterns. Other things need to come into play now like down/up volume, sentiment and extraneous news events (this is the stuff of relief bounces, after all).

The chart was also used in NFTRH 379, along with a couple weekly views to clearly show what the index is doing on the bigger picture (it’s not bullish). Indeed, using this weekly chart we held open the possibility that SPX was doing the ‘2011 Comp’ thing until noting that MACD did what it did not do in 2011 and re-crossed down a few weeks ago.It has since made a lower low and the 2011 Comp is out the window.What’s more, down volume has dwarfed up volume.It’s not 2011.

The daily chart above shows the 62% Fib retrace level at 1977, which I will include under the heading ‘2000 (+/-)’. The minimum bounce level is the 38% Fib at 1914.The market made it to 1909 on Friday (that’s nearly 100 SPX points from the whipsaw low). That could also be close enough for government work.

Smart and Dumb money (courtesy of Sentimentrader.com) got near, but not to August’s puke levels and due to this and various other measures (all covered in #379) I suspect this bounce will not be nearly as persistent as the one that predictably came about post-September, 2015.

This is a short blurb of analysis and to get the markets right, as opposed to just taking the word of some blogger, you need to do full, comprehensive work in order to be right with the market, whether it is conforming to your preferred view or not in any given short-term period.The balance of my work says that 2000 (+/-) would be a great bounce level that brings some hope back to players and sets up a low risk shorting opportunity.

But there are other scenarios in play and this time the market is under no obligation to bounce to that degree. That is why I held and added short to the relatively weak and longed the relatively strong, pending new information and within the framework that says this is a bear, not a bull trend.

Again, that’s according to a range of work (see VIX, see CPCE, see historical ‘percentage of new lows’ instances, etc.) we did this weekend and do every week. Not according to a post on a blog summarizing things. Do the work.