Last week's suggestion that traders should be selling rallies proved to be the right strategy all week long. The SPX lost 58 points and market internals deteriorated even further. The daily and weekly trend remains down, while the monthly trend is flat.

But just as it is true that markets don't go up forever, they don't fall forever either. At some point a sharp corrective rally is imminent, and it could come at any time now. The reasons for this are manyfold, and below we'll focus on a few of them.

The SPX daily declined to the 50% Fib retracement level which, according to Gann among others, is the retracement zone where you would expect strong support to come into play:

Source: OT Fibonacci app

At the same time, the SPX weekly is closing in on the 32% Fib retracement level:

Taken together, this means that there is a narrow but strong support band forming at the 1289.5 - 1290.5 level.

In addition, the Trend Oscillator is fast approaching the oversold zone, usually associated with reversals:

Source: OT Trend

And last, but not least, the SPX index is nearing channel support, from where one would expect a tradeable bounce to occur:

Source: OddsTrader

In summary, the SPX registered a significant drop last week and has reached oversold technical levels which are usually associated with counter-trend moves. Watch for a drop below 1289 - 1290 as a sign that the downtrend is continuing, while a rally above Friday's high at 1312 will be the first indication that the worst may be over for now.