Is More Correction Needed?

Current Position of the Market

  • SPX Long-term trend: There is some good evidence that we are still in the bull market that started in 2009, a market setting which could continue into the first half of 2021 before coming to an end. 
  • SPX Intermediate trend: May continue until SPX reaches ~4050-4150 (March 2021).
  • Cycles: Looking ahead. 
  • 90-year cycle – last low: 1932. Next low: ~2022 (Inversion likely).
  • Seven-year cycle – last low: 2016. Next low: 2023.

Market Analysis - Is More Correction Needed?

The answer to the above question is probably ‘yes,’ as we may require more correction before we can start the final move toward an intermediate high. Last week, IWM and SPX both pulled back, found support, and rallied. There was still no advance warning of an intermediate top. The minor correction was anticipated and it was the headline of the last letter. Is it already over? Probably not. We should find out early next week.

SPX Daily Chart

Last week, SPX showed some negative divergence in the CCI. This was a warning that a correction was about to take place. The prospect was that the index would come out of the blue channel which represents the short-term trend since the 3694 low. It did so on Thursday, as it rallied to the broken trend line on Friday and started back down.  

The initial decline stopped at the low of the previous support, as well as on a mid-channel line. This created a red neckline which may be tested again early next week. If it does not hold, the correction should continue down to about 3830, which would represent a 50% retracement of the previous rally and demonstrate support from a previous short-term peak.

This level is also confirmed by the P&F distribution to the right of the 3950 high. If you look at the chart below, you will see that ~3830 is the area where there is a junction of two other trend lines. This makes it a good candidate for the low of this correction.  

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Charts courtesy of QCharts.

The above comments, as well as those made in the daily updates and the Market Summary about the financial markets, are based purely on what I consider to be sound ...

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