Roller Coaster Ride?

The stock indices beat me to it! In today’s blog, I was going to sound a warning that I believed the US indices were about to correct substantially. It would be worthwhile going through the reasoning to see how far this down move is likely to reach.

The cash chart of the S&P above shows:

• An A-B-C-D formation that represents a 13-W 3-bar congestion. The boundaries are 2813.5 and 2631.1.
• The blue Time Price Labels show the date of the FOMC meetings.
• The colour-coded data shows the average true range, the standard deviation of true range, the mean volume and the standard deviation of volume within the coloured rectangles.

Note that until the December low, Powell’s backtracking on raising rates failed to produce a rally.

In December, a couple of my newsletters were suggesting that the “rescue squad” would soon be entering the market. If they did, what we could expect to see was a sharp jump in the indices followed by moves of declining volume and range.

Since the December low, the indices have been following that script. For example, the average true range has dropped from 40.1 to 24.2 to 18.4. Volume has shown a similar decline.

Last week, the indices reached the top of the boundary of congestion at 2813.5. If there were going to be a decline, this would be the spot.

However, if we look at yesterday’s price action, the down move was unconvincing.

The S&P rallied off its lows to close about the midpoint. I would need to see further selling pressure before saying that this current rally is over.

If the S & P forms a daily acceptance above 2813.5, the next target will be the high at 2939.9. Whether or not it can take that resistance out will depend upon how the index approaches the level.

If the index does sell-off from here, the minimum target would be 2631.1. Just below that are the 50% levels, 2603.4 to 2567.7. Acceptance below 2500.7 which suggests a retest of the December lows

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