As anticipated, the market was ready for a rally, and SPX obliged with a 32-point bounce which came in three distinct phases and were a display of Fibonacci symmetry.  At first, the index retraced .382 of the decline from 2378 before pulling back. The second phase went to .50 before reversing, and finally, the third phase slightly exceed a .618 retracement before ostensibly putting an end to the bounce and tacking on another .618 retracement in the opposite direction. But it did not stop there and the Fibonacci sequence continued to rule the moves into the close.

The index ended the week without the indicators telling us clearly that it was resuming the downtrend, and it is possible that of the 2361 high will be re-tested and perhaps exceeded. A knee-jerk reaction to the French election results may take place, so this is not the time to make a concrete near-term forecast.  We’ll do that after Monday’s opening.  But I see no reason to expect a radical change in the intermediate forecast which should still be governed by the cycles bottoming in the next two or three weeks.

Analysis: (These Charts and subsequent ones courtesy of QCharts.com)

Daily chart

In the last letter, I mentioned that although the (dashed) lower channel line from 2084 had been penetrated, it was by a minimal amount, and we can see why the index did not continue lower. It found support at the juncture of two parallels of the top line of the two long-term channels, one being the bull market channel, and the other the channel formed by the price action since the 1810 low. For the past week, SPX has traded in a tight minor uptrend crawl against the lower channel line and will continue until those two parallels are breached. It could come quickly on Monday if the market reacts unfavorably to the French elections, or it could be delayed in case of an opposite reaction.  

Next week is also loaded with other potential stimuli for the market to move in either direction, so we do not want to get too detailed in our prognosis until the week is farther along. The oscillators are mixed with the SRSI back in an uptrend unconfirmed by the other two; but the patterns could change quickly if next week turns out to be volatile.