Andre analyzes the S&P 500 index with classic technical analysis, cycles, trendlines and Fibonacci projections. He's helped our readers many times through this equities rally, including by warning when it wasn't quite ready to top out. What's he saying now? We'll see:
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By Andre Gratian
Let’s start with generalities and move on to specifics. Please note that the correct close on Friday should read 1091.11. The error will not affect our analysis.
The SPX has run into the serious resistance created by a long-term trend line. It has been in an uptrend since March and is trading near the top of its larger (green) channel -- a sign of strength -- which is supported by the A/D oscillator that, until now, has been positive except for two serious dips in the negative: once in July, and the other recently, in early November. Both were advertised by negative divergence patterns.
The July dip was followed by a strong price advance after it returned into the positive. The November one either needs more consolidation before the index can resume its advance, or it is the indication of an important top if it returns decisively into negative territory -- provided it is confirmed by other negative technical readings. What would those be?
To start, the SPX would have to break below its 50-dma (blue), which would also put it outside of the black secondary channel. This would only constitute a minor correction, providing prices remained above the early November low. If it did break those, in order to grow into a major decline it would have to continue down and move outside its green channel (below 1000) and then successfully challenge the (red) 200-dma by moving through it.
Only if it did all these things could we say that we are back in a major decline which had the potential of challenging the March lows!
Is Friday’s strong correction the beginning of such a move? Too early to tell, but unlikely! We won’t have to wait too long for an answer, however. There are 4 short-term cycles bottoming between Monday and 12/7. If the SPX has not moved decisively below the 50-dma and out of its black channel by that date, instead of weakness, we should be ready to resume the rally to new highs.
The chart of the USD (below) would have to show a break-out in order to confirm a top in the SPX. It doesn’t! Friday’s rally did not come even close to provoking a reversal. In order to reverse, the $ index would have to move above its MAs and the channel in which it is currently trapped. It does not appear ready to do this. This is one of the main reasons why the SPX is probably only undergoing a consolidation pattern.
Let’s take a look at the hourly chart of the SPX (below). The index is making a consolidating pattern which looks like a triangle, but probably is not. It will clarify itself as we move forward.
The cycles discussed earlier are marked by asterisks or numbers. The last one falls on 12/7. The consolidation should be over and the rally underway by then. In fact, the rally could start with the Jobs report on Friday 12/4 which would correspond with the blue asterisk.
The limits of the consolidation -- so far -- have been marked by a small black channel. The upper bottom trend line is where prices found support at 1084 on Friday before starting a good rally. The bottom of the channel, as drawn, may not contain the decline into the future cycle lows. I have mentioned earlier that if 1085 was broken decisively, prices could move, initially, to 1070 as their first target. With the S&P E-mini dipping to 1067 in pre-market trading, it is likely that the target has been filled, but it may be re-tested by the cash.
As of Friday’s close, the hourly indicator was oversold, but not quite ready to turn up. The daily indicator is still declining.
A resumption of the decline into the first bottom on Monday is likely, followed by a small rally.
Let’s see how the week goes before making too many specific predictions. The first thing to determine is if the consolidation pattern will hold or evolve into a full-fledged decline.
Andre
Market Turning Points
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.
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