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.
But first, SPX will have to break the second black trend line shown on the chart. Also, if 3830 is exceeded, the decline could continue down to the blue 50-dma (~3778), which is also located at the bottom of the rising channel.
SPX Hourly Chart
SPX made a new all-time high and started to retrace. There are several valid support and resistance lines drawn on the chart which, as you can see, are all capable of pointing the price action either upwards or downwards.
After the decline found initial support at a previous low, the index rallied and failed to surpass the top red resistance line, and then the top red channel line -- which held for four hours on Friday and finally repelled prices into the close – so we can pretty much conclude that the correction is not complete. But this will have to be proven with a break below both the black trend line and the red horizontal support line which held last Thursday.
There are other trend and support lines drawn lower which could indicate where the correction will end. My preference, which is expressed in the daily chart analysis, is in the vicinity of 3830, which combines a 50% retracement, a P&F count, and support levels. Should we go beyond, adjustments to the analysis will be provided in the updates.
Another possibility is that the index will find support, at least temporarily, on the magenta trend line. We will know better early next week. The oscillators are indecisive.
UUP (Dollar ETF) Weekly Chart
It looks as if UUP is being repelled by its intermediate red channel line, and it will have to do some additional basing before it can go through it.
GDX (Gold Miners) Daily Chart
GDX is in the vicinity of an important cycle low which should end its consolidation. I had expected this low to come last week, but this week is good enough. There could be one small, climactic spike down, but it is not necessary, and if that should occur, there is important support directly below which should limit any further weakness.
PAAS (Pan American Silver Corp) Daily Chart
PAAS is subject to the same cycles as GDX, so I could also see a final minor retracement before reversing; but it is stronger than GDX and already well off its lows.
BNO (Brent Oil Fund) Weekly Chart
BNO has reached its 16.00 projection target and should now consolidate, perhaps after distributing in this area for a little while longer.
Summary
At the end of last week, SPX started a minor pullback which may not be complete, and it could ideally take prices down to 2830 or even lower.
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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