Current Position Of The Market: SPX, Money, Metals

SPX hourly chart 

The hourly chart shows the grey uptrend channel which stopped prices at their highs and at their lows.  Dashed parallels which partition the trend channel into sections also provide support and resistance within the main channel.  The blue 50-hr MA normally points to the beginning and to the end of the correction when it is crossed.  As you can see, it was crossed near the channel top, leading to the first decline (a-wave) of the correction.  Connecting the b-wave rally high to 3950 created a red downtrend line, and by drawing a parallel across the former short-term high of 3870, we formed a shallow channel the bottom of which has supported prices on two separate occasions.   

Some steeper trend lines were also drawn to define the parameters of the shorter correction channel. Friday’s action took place in the outer half of the small channel, suggesting that the consolidation may soon come to an end -- probably after the index makes another trip to the bottom of the larger red channel.  The downside projection derived from the top congestion pattern tells us that the correction is likely to end around 3780. If Friday’s late decline continues to the bottom of the larger channel, it will likely again find support at the targeted price level.  A reversal would then be expected which would move the index out of the smaller channel, rise above the blue 50 MA, and challenge the former high.  The index’s inability to cross above the top red downtrend line right away would not be a problem, but if it fails to do so on a second attempt after a small pullback, it could mean that a longer correction is underway, in which case the decline could continue down to about 3700.

If the positive divergence which has already formed in the hourly oscillators is preserved on the next low, it will add to the perception that we have probably come to an end of the correction.

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