The king is dead. Long live the king.

Wow. When this market moves, it moves! It took 3 months for the SPX to lose 10%. Looks like it will retrace that loss in a matter of weeks. I had a question posted asking if this move may correct itself. This, given the uber-fast move on the SPX after bouncing off of the 4200 technical support level I’ve harped on about all summer. I’ll address that question with one chart today.

First, here is my blog posted Sunday afternoon, suggesting the market had a bit more move left before it hit a neartermed overbought point. I guess I was right – what a move! As noted on that blog, I felt the market would move to the top of the its daily chart Bollinger Band, and RSI. Yes, I was surprised it happed as fast as it did. But, fast moves do seem to happen more often these days, don’t they?

Below is the updated chart showing the move that literally gapped up to the top BB, forcing the momentum studies immediately into overbought territory. So what’s next?

Near termed analysis

As the chart with my Short termed Timing System above tells us, the SPX is now entrenched in an overbought status. Its gapped up to the top BB, its stochastiocs line is overbought and moving flat, and RSI is just under the overbought level (which is 70). RSI often only approaches overbought level before a correction starts. Occasions like in June or July where it went above the 70 line are rare – and signal larger corrections.

My view is that the bounce off of 4200, and the break of the last peak near 4380 suggest that the next correction will be shallow. You may get that correction very soon. I view any such moves as “buy the dip” until the SPX reaches its 2022 highs of 4800. Thereafter, I am quite concerned that we will see it stall or fall – per my long held opinion of a current sideways market phase.

Longer termed view

You’ve seen me post this chart in the past – illustrating the tendency for markets to enter multi-year consolidation patterns with little of no new highs. I beleive there’s a good chance we are living in such an environment right now.

Conclusion

When the bull market transitions. Trade the upswings. Sell the downswings.

The king is dead. Long live the king!

Financial Literacy Month

I’m involved in the MoneySaver Financial Literacy Month–my presentation is next Thursday November 23rd at 7:00pm–its an online webinar. And its free! The webinar is an entry-level into to Technical Analysis. Please forward this link to anyone who you think should learn the basics:

Canadian MoneySaver Events – Canadian MoneySaver

3 Comments

  • Is Mr Warren Buffet losing his touch? Massive investments in OXY, Chevron and AAPL…oil this week dropping from softening demand. Apple merely improving due to share buybacks, artificially sustaining the stock. Enbridge may not move back to the upside just yet.

    Reply
    • I believe that Mr. Buffett takes a longer view than just what is happening right now.

      Reply

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