Market Looking Toppy

After a three-month decline of nearly 600 points, SPX was more than ready for an oversold rally. The end of the initial down-phase of an intermediate to long-term correction which is expected to last for several more months finally came at 2346 and, only two weeks later, it has already retraced forty percent of the downtrend. One of the hallmarks of the recent market action is extreme volatility, such as has not been seen since the 1930's, whereby the Dow had a range of as much as 1152 points in a single day (12/26/18). In the last few days, it has died down to a whimper.  Does it spell a total loss of upside momentum?

When the counter-trend rally started, I suspected that it could reach as high as 2625 before coming to an end. Over the past three days, it has encountered resistance at ~ 2595 and, although on Friday it did close on its high of the day and within a point from the high of the move from 2346, I am not sure that it can make it all the way to the projected target (which is based on a combined  P&F and Fib projection) before reversing. Of course, it can be helped or hindered by events transpiring over the weekend, and we’ll have to wait until Monday to see if it can move a little higher before calling it quits.

Cycles suggest that we are in a topping area and that the next low point in the market could be about a month away.  As of now, nothing suggests that we are heading for a new low in the primary trend. In fact a new low may not come for several more months.  In the meantime, trading in a broad range in the foreseeable future is what is anticipated by cycle analyst Eric Hadik.

Chart Analysis  (The charts that are shown below are courtesy of QCharts)

SPX daily chart  

In the last letter, I pointed to the overhead resistance band corresponding to P&F and Fibonacci projections for the counter-trend rally which started at 2346. This is the approximate level where I felt we should look for a reversal. Last week saw a new high for the move to 2597 punctuated by some price deceleration in the past three days, when the index could not immediately punch through that level. However, with Friday’s close at the weekly and daily high, the odds of going all the way to 2620-25 are still good.

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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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