Bump In The Road?

  • SPX Long-term trend: There is some good evidence that we are still in the bull market that started in 2009, which could continue into the first quarter of 2021 before coming to an end. 
  • SPX Intermediate trend: May continue until SPX reaches ~4150.
  • Cycles: Looking ahead. 90-year cycle – last low: 1932. Next low: 2022. 
  • Seven-year cycle – last low: 2016. Next low: 2023.

Market Analysis -- SPX-IWM Daily Charts

This is the biggest retracement by SPX since a new intermediate trend started on Oct. 30. IWM did not give warning that this was coming, except for some negative divergence in its oscillators, but this is not enough to suggest that we have begun seeing an important correction. Also, IWM remains stronger than SPX for the time being.

SPX Daily Chart

In my last post, I warned that breaking below the green trendline which started in late October would initiate a correction, but I did not expect it to be anything severe as there was not much warning from IWM. In fact, this is turning into the biggest correction since the beginning of the new intermediate uptrend.

Still, although I believe the correction could last until mid-February, I do not think that it will turn out to be anything major. At the most, based on the degree of distribution in the P&F chart, I would not expect the retracement to go beyond 3640.  

I had also mentioned that we should be wary of the negative divergence that had developed in the daily oscillators. This does not always result in an important correction, but it depends on whether the CCI goes negative, and then how long it remains in that state. In this case, it did go negative on the first day of the decline, and it continues to remain so. We should wait for positive divergence to re-appear before expecting an end of the correction to occur.

Structurally, the majority of corrections take place in a three-wave pattern (a-b-c), and by Friday we were most likely approaching the end of the a-wave. If so, it could be the middle of the month before the entire structure is complete; perhaps in conjunction with the next 20-td cycle low due about Feb.10-12.  

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Charts courtesy of QCharts.

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