Anticipated Correction Starts Right On Cue

Two weeks ago, I passed on a warning from Erik Hadik (Inside Track) that he saw the same cluster of cycles that brought about a rapid and significant market decline coming into play again and forming the same ominous peaking pattern. In last week’s letter, I reminded readers of this warning and urged them to take it seriously. Although not conclusive, there were enough technical signs that this was a real possibility. Starting last Monday, that prophecy was fulfilled with a decline of 122 points in the SPX.  Although Friday saw a rally which ranged sixty-five points from morning low to late session high, it was not enough to take it out of the downtrend channel, and it was certainly not enough to reverse the trend and give a buy signal.

We’ve heard enough times that bear market rallies are swift and powerful. Friday’s rebound meets those qualifications, especially since it was probably helped greatly by a comment from the president and the treasury secretary that trade talks had gone well.  On Friday morning, the SPX did reach a short-term downside target and was due to have a bounce, but it turned out to be more than that, leaving no doubt positive comments about the negotiations had something to do with it. Left to its own resources, the market will have to prove that the bulls have already regained control. That’s unlikely for a number of technical reasons, primarily that the daily indicators are nowhere near ready to give a buy signal. Also, the kind of a top envisaged by the cyclic formation which is behind the selling is not expected to be resolved in a single week.

Although market moves have a cyclical origin, these are usually activated by a news catalyst. In September, the catalyst was a potential trade war, primarily with China. The catalyst activating the current cycle cluster is the unresolved trade war with China. It remains to be seen if it will produce the same results.

SPX daily chart

I’ll keep the analysis so simple that even a technical neophyte can grasp it fully:

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Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of ...

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