SPX has popped to resistance at the top of a ‘W’ pattern and halted there. This is a valid termination point. The chart however, has higher levels where the bounce, which was anticipated since before the Tinder Box post, can terminate. The 2000 area, 2040 and a measurement of the ‘W’ to around 2120 are the next levels.
We drew the parallel in NFTRH 362 using a weekly chart like this one. As it happens, the ‘quants’ are on this theme as well. As B.I.G. points out, it’s been one of the longest runs on record (1,326 days) without a 10% correction. Well it is here and it is remarkably similar to 2011’s correction.
Blow the chart up by clicking it. You’ll see a similar price pattern below the EMA 70, which is starting to turn down, similar MACD, over sold RSI and AROON down. A difference is that 2011 had big down volume bars and this one does not have capitulation type volumes yet.
Now, will history repeat? I am certainly open to it. But the very fact that it’s been 1,326 days without a 10% correction is a negative, not a positive. Something about pressure buildups and the like.
Here is the daily chart from NFTRH 360, which also used weekly and monthly charts of SPX to make its points, along with weeklies of several other indexes.
Here is a short clip from the analysis that accompanied it. There was a lot more in-depth analysis, including 4 near-term scenarios listed from most to least probable (in my opinion).
“It is getting a little monotonous to report, but the bounce is still intact, although it continues to lurk at resistance #1. With the Death Cross of the MA’s 50 and 200 the typical reaction is to burst upward to screw over everyone who took action based on this over hyped TA signal, but as yet the market is consolidating after the initial bounce.”
Any given day could terminate the proceedings, but thus far the market is doing exactly what we laid out for it, which was a bounce to either Resistance #1 (check) or Resistance #2. Here we recall the ridiculously over-bearish sentiment data from Small Speculators and Investors Intelligence (Newsletter writers).
The other side of the plan involved the VIX, which was hysterical at the time of the correction. We planned for a pullback to to the 20-22 range (check) and after that was hit, refined a range of 18-20.
It was hard to project a strong bounce in the US stock market, let alone a big decline in the VIX in the heat of the moment, but project them we did. The market has become considerably less exciting now.
As the fireworks were going off I covered shorts (too early of course), shorted the VIX (very profitably) and have since longed the market with one quick short in there as well. But mostly, it is back to the boring stuff (don’t tell me about the FOMC and its 1/4; that is a circus) as we await bounce targets (pullback targets on the VIX). The next phase of excitement, per the probabilities we are tracking and updating, should be coming fairly soon.
Well, look who’s back in his leadership channel. The Semiconductor index, which led the recent market turmoil, is back up into the post-2012 channel. We noted this over the weekend in NFTRH 359 and the leadership status is only firmer now.
“I would like to close the segment with a nod to the bull case. The SOX has been a great market leader. It led the extent of the post-2012 bull cycle and it led the recent mini-crash. As a point of consideration, SOX-SPX bounced during last week’s bearish broad market activity. In fact, it bounced right back up into its former leadership channel. This is now back on radar as an inter-market indicator. It is supportive of a resumed bounce.”
As for nominal SOX, NFTRH 359 noted [chart omitted]…
“Nominal daily SOX has gotten resisted by the mid Bollinger (MA 20) on each bounce attempt, but MACD is triggered and the gap is filled. The bounce is intact.”
Here are a few different charts we have used in NFTRH in order to keep a view of the US Stock Market’s big picture in mind even as we managed the shorter-term picture, which culminated in the daily SPX breaking down out of the nose of the 50 and 200 day moving averages per the chart in this post.
The point I was trying to make even last year as the MACD rolled over, was that the market was coming due for a correction and that while the MACD looked like a bull ender, similar conditions in 1998 and 2006 were not. They were bull refreshers as momentum refueled for the ultimate drive to the top. The EMA 20 (green) was seen as the bounds of a ‘normal’ correction and as of now, in-month, SPX is well below that MA.
Another message of the chart is that SPX can correct all the way back to 1550 and SPX would be in a cyclical bear within its big bull market breakout. Click for a monster sized view.
I created this chart after reading some cycle work by Peter Eliades, by way of one of Robert Prechter’s EW Theorists. This further defined the time window for the correction. Boink, good job Peter.
This chart shows the ‘higher low’ that SPX needs to make to avoid doing what some other indexes have done in making lower lows to October. Generally, SPX and other US markets need to not close August below that level or a cyclical bear is likely.
People talk about how the US market has not yet accelerated upward and indeed, there is a chance that the manic up phase is still out ahead after this fright fest cleans the market’s pipes. But the slope of the post-2012 bull phase looks similar enough to the post-1998 bull phase. There is no implicit need for further acceleration to end the bull.
It is really interesting though that China/Asia are being blamed for everything right now. The similarity to the late 90’s ‘Asian Contagion’ is clear. That thing ended up being an accelerant to mania. What will this thing end up being? If SPX does not get back above the EMA 20 soon it will look different than the 2 previous downside whipsaws.
Hey guys, the S&P entered a correction the moment it broke down from the nose of the Diamond and the pinch between the MA’s 50 and 200. But here’s Reuters by way of Fidelity to clue us in that S&P entered a correction today.
“NEW YORK (Reuters) – U.S. stocks ended more than 3 percent lower on Monday, their fifth straight drop, in an unusually volatile session that confirmed the S&P 500 was formally in a correction.”
I don’t know about you guys, but I’ll take the informal kind of correction and prepare accordingly. It started when SPX dropped out of the red dot for the 2nd time and was confirmed when 2050, a whopping 157 points ago, was lost.
Here is what actually happened. SPX chose ‘down’ from its moving average decision point. This had been the most likely direction given momentum, leadership and participation that had been fading long before hand, although it also seemed pretty obvious. I mean, you and I both saw it, right? SPX then broke support #1, turning into resistance #2. SPX then broke support #2, turning into resistance #1.
And now here we are. The bull market is intact and the test is at hand. What the market has going for it is Mr. Frumpy Trader up there, and a lot of bear market calls coming out.
So everybody’s got the bear memo, the Margin man has probably made a good amount of his collections and nothing is resolved. Not unless the market loses the October lows.
The consolidation pattern is looking none too good so far today. At some point this could play into our overall Macrocosmic plan as the Microcosm Expands incrementally. Of course those running the machines in the fantasy factory may start to concoct a ‘Fed’s not gonna hike!’ bull story at any point. But right now, this thing is going bearish.