SPX: Long-term trend:  Severe correction underway.

SPX: Intermediate trend – .618 retracement reached as well as total projection.  End of rally likely.

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 discuss longer market trends.

SPX AT TIPPING POINT

Market Overview

Last week’s headline was: “MAX. PROJECTION 95-100% COMPLETE…” At the time, the SPX had registered a high of 2009 (95% of the count) and was starting to correct. That correction lasted until it had reached 1970 on 3/10, at which time traders decided that they should go for that extra 5%.  Last Friday, SPX closed at 2021.94, just a few points shy of reaching the full projection.  

Intermediate and long-term P&F counts have been accurate the great majority of the time and should be taken seriously. At what point would the current forecast be wrong?  If the index continues to rise beyond 2043, the premise that we are in a “bear market” would begin to face a challenge.  

When we reached 2009 and started down, some technical conditions which normally occur at a top and warn that a serious reversal is about to occur were still missing. Namely, negative divergence in the daily indicators! This condition is now in place — as we will see when we analyze the charts. We will also see that the hourly indicators are running out of steam. And, another important feature may have been added:  the creation of an exhaustion gap which occurred on Friday at the opening.  It will be confirmed as such if we reverse and close it in a few days.  

I have hesitated calling the current downtrend a bear market, preferring to label it as a “severe correction”. My reason is that the distribution pattern which was formed between May and August 2015 has a “strong” count which could result in a decline to about 1500. If we stop there, we would only have retraced a little more than .382 of the entire bull market!  However, if we take into consideration the distribution phase (weak count) which occurred prior to the May peak of 2135, the decline could extend another 450 to 1050 points. In other words, the worst case scenario could have us retrace 70.7% of the bull phase, with a good possibility of stopping at a 50% retracement (about 1388).