A review of the S&P 500 bounce scenario

Took well earned profits on AMZN, BBRY and XLE while holding a few other well protected (via shorts on relatively weak areas) longs, including SPY.

If you ask me, a perfect bounce in the stock market would be one that goes high enough and/or lasts long enough to get former, recently bullish participants hot under the collar for fear of missing out.The sentiment backdrop, extremely over bearish near, but not quite to the level of last summer’s puke fest, would seem to indicate the S&P 500 could get back to 2000 (+/-) for a re-test of the key breakdown.A bounce that grinds its way up there over the next week or two would be optimal.

Below is the daily chart of SPX again, with everything (volume, indicators, etc.) stripped out of it. This chart is from Friday’s pre-market post at NFTRH.com, which included this:

“First, SPX has to break the Wedge. In that case, the downward spike below support would be a scout for future bear activity.Meanwhile, much will depend on incoming technical, macro and sentiment data. A bounce to SPX 2000 would be a gift for would-be bears.”

We have noted often in the past however, that the Rising or Falling Wedge is the most hyped thing in TA (this side of Golden & Death Crosses). The Wedge break below for example, in retracing nearly 38% of the 2016 decline, has already fulfilled all it is required to fulfill. On a daily chart, these are very short-term patterns. Other things need to come into play now like down/up volume, sentiment and extraneous news events (this is the stuff of relief bounces, after all).

The chart was also used in NFTRH 379, along with a couple weekly views to clearly show what the index is doing on the bigger picture (it’s not bullish). Indeed, using this weekly chart we held open the possibility that SPX was doing the ‘2011 Comp’ thing until noting that MACD did what it did not do in 2011 and re-crossed down a few weeks ago.It has since made a lower low and the 2011 Comp is out the window.What’s more, down volume has dwarfed up volume.It’s not 2011.