Seven weeks ago, I wrote:
“This S&P 500 index has been trading to plan, more or less, for the past 12 months… The Charts are indicating we are in need of a pull-back in the order of 4% to 1,382, and perhaps 5% to 1,368.”
This market, and the world market indices, have fallen as expected. The index is at 1,359 now, which is down 5.9% from the last report.
Intra-day falls have been slightly more, on Friday night falling to a low of 1,343 which is a fall of 7.2%, but it is the close that is important.
The index is now in balance, with positives slightly outweighing negatives. The market has been orderly.
This is now the real test. How will it consolidate around here is vital to how it trades in the coming weeks to months.
A bounce at these levels or even a little lower, will mean we can expect a “steady as she goes – muddle through scenario”, both in the USA and globally to continue.
If we don’t get a bounce, then greater “volatility” can be expected in the USA and globally.
Technically, we are entering into an important point in price and time. This is across many markets, not just the US S&P 500.
Positives
1) I wrote on 2 October, “A retracement of 4% to 1,382 is not unreasonable and is welcome. This would take the index to be up 9.1% since 4 June. If it does this, it can build from that nice base without needing a more substantial set back.”
So now, we’ve had the pull-back we had to have. If the market starts to recover from here, it will be a very nice positive.
2) The market is up now 7.3% from the 4th of June, that’s a little over 5 months. This is a reasonable return and a reasonable level to be at. We have a harmony in both time and price. At the peak of this run in September, when we were calling for a pull back, it was up 16.4% in only a little over 3 months. 16.4% is an unsustainable overshoot.
3) The 200 day moving average is still pointing up or flat. Indicating the uptrend is still on track.
4) The market has been trading in an orderly fashion for 6 months, and this is in accordance to plan.
Negatives
1) The 200 day moving average has been broken. Indicating that the uptrend is at risk.
2) The index has only just reached these new lows, slightly exceeding the expected falls. This in itself is not such a negative, except that the index needs to now show a consolidation pattern around these lows ie recover sooner rather than later. A failure to recover in a reasonable time frame will indicate deeper falls are in store.
3) A lower level of 1,298 is observed but not acknowledged as necessary. This would not be the preferred level to bounce off as this is still another 4.7% lower.
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