Key Support Being Re-Tested

This market has been a real bear, lately. (Forgive the pun, but is it really one?) While we do not have absolute confirmation that we have started a bear market -- and won’t until we begin to decline in earnest below 2604 -- all the evidence points to massive distribution taking place in a roughly 200-point range. SPX is again approaching the low of that range, and has even broken the last short-term low of 2731 intra-day, but it would have to drop another 30 points to make a new low and, since it is approaching the strong support level which stopped the decline last time in a short-term oversold condition with positive divergence showing in the indicators, odds are pretty good that this support will hold again. In addition, I have mentioned several times in my daily updates that we could expect another pull-back into about 12/10. Therefore, ending this short-term correction on Monday or Tuesday would be perfect.

And then what?  Probably something similar to the last time; another short-term rally which could get the index back up to at least 2800 in order to create additional distribution before we get started on the potential 700/800-point biggie. Watching the combined daily and hourly indicators has always been the best way to identify short-term tops and bottoms (usually pre-determined by P&F and Fib. measurements), but in this atmosphere of extreme volatility, the reversals come at a rapid rate.  

SPX daily chart  

Since the last rally stopped on the extension of the trend line from 1810, we can probably assume that this was a back-test of that trend line. However, I am not so sure that we will stop there next time, especially if we add to the P&F base which is already in place. Of course, if we drop below 2600 before rallying, it would change expectations for the timing of this next rally, but if we hold above, we could easily surpass the 2800 level on the next move.  No point getting too specific now, though. Let’s wait and see how much more of a decline we get before we start our rally.

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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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