After a big sell off this week the resumption of the up-trend can be jeopardized with more follow-through. If this is the case, from the May high a large corrective pattern could still be underway which could be forming a Triangle (Bullish or Bearish).
The lack of impulsive moves both to the upside and to the downside is resulting in a murky outlook.
Breadth Indicators are now clearly signaling weakness ahead:
- The NYSE Summation Index has triggered a sell signal. Without a breadth thrust that would reverse the bearish bias the next buy signal might occur when the RSI enters the oversold zone (Below the 30 line)
SP 500 key price levels:
a) Weekly time frame
The range 2020 - 2013 is a critical support. If it does not hold the odds of a large decline would substantially increase (Towards the lower Bollinger Band)
To the upside bulls have to reclaim the 27 wma = 2061 in order to regain the upper hand
b) Daily time frame:
The range 2021 - 2018 (Support 1) then we have the 50 dma = 2007 (Support 2)
Friday's gap at 2046 (Resistance 1) and the 200 dma = 2064 (Resistance 2)
We have several indicators that are showing extremes:
- Equity Put/Call Ratio (Contrarian indicator)
- Daily Stochastic and RSI (5) have ended the week deeply oversold
- The McClellan Oscillator is below the lower Bollinger Band and it has crossed the oversold line. The RSI (5) is also oversold
Barring a crash next Monday the short-term oversold readings should favor a countertrend rebound (Bearing in mind that the short term trend has now shifted to the downside).