Oversold Condition

Current Position of the Market

SPX: Long-term trend – Final long-term phase on the way? How much longer, is the question.

Intermediate trend –We have started a correction of intermediate nature.

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 longer market trends.

Market Overview

After several weeks of distribution at its recent high, the bottom dropped out and was followed by a 200-point decline in the SPX in about a week’s time. The decline found support at the bottom trend line of a bullish channel which started to form at the December 2018 low of 2346.That and a grossly oversold short-term condition generated a counter-trend rally which has retraced slightly more than half the distance of what is probably only an initial selling wave. Since a fifty percent retracement of any move is fairly normal for a counter-trend rally, we should be looking for an end to the 100+-point rebound and a resumption of what should now be an intermediate downtrend. 

Friday’s action showed sign of stalling but did not give a sell signal; consequently, a little more time may be required to achieve a complete reversal and a continuation of the initial down-phase.

Market Analysis (The following charts are courtesy of QChart)

SPX daily chart

The decline from 3028 was sudden, engineered by two nearly simultaneous catalysts. It sliced through the small blue channel, the 50-dma, and came to rest on the bottom channel line of the larger channel, from which it staged a corrective rally back to just below the 50-dma.Considering thatthe rally also retraced a little more than 50% of last week’s downtrend, it is likely that this is merely a rally in a downtrend (more specifically the beginning of a downtrend) which is very close to ending and extending the initial decline to 2822 (2775 in the futures). It would be extremely unusual for the index to resume its long-term uptrend immediately after such a massive selling wave. At the very least, a re-test of the channel bottom should be expected and, more realistically, expectations should be for the channel line to fail to contain prices on the next decline. 

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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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