More Short-Term Weakness Ahead

Current Position of the Market

SPX Long-term trend:  For now, the best guesstimate is that we are still in the bull market which started in 2009. Where we go from here and how far will be gauged after the September-October correction. 

SPX Intermediate trend:  Intermediate correction nearly over?

Cycles:  Looking ahead!  90-yr cycle – last low: 1932. Next low: 2022 

7-yr cycle – last low: 2016.  Next low: 2023

Nest of short-term cycle lows on about 10/15-20 (currently driving short-term market action)

Market Analysis (Charts courtesy of QCharts)

SPX-TRAN- IWM – daily charts

The minor correction of the past few days has not affected the relative standing of the SPX vs. its leading indicators. The inference remains the same:  while we could go through a period of consolidation, it should be followed by a resumption of the uptrend. 

SPX daily chart

After a strong uptrend from its March low of 2192 which stopped just shy of 3600, SPX had a mild correction down to an area of support, and rallied without being able to exceed its recent all-time high. Last week’s pullback found support just above the short term break-out level of 3430 and bounced but, judging by Friday’s action, the current minor correction does not look complete.  

There is a strong level of support at 3430 denoted on the chart by a dashed line which could turn out to be the neck- line of a reverse H&S pattern. Since the tendency in such a pattern is for the break-out above the neckline to be completely retraced, and since our correction did not quite do it last Thursday, it’s likely that we’ll try again next week before resuming the uptrend.  

Before going any farther, it should be mentioned that H&S patterns have a high rate of failure, as they often morph into some other market pattern. If this does turn out to be one, we could see the next short-term uptrend carrying the SPX to ~3650; but be aware that this is only theoretical until we have determined that this is truly an H&S bottom.

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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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