Yesterday I examined the context to the current rally. Today I’ll look at the rally itself.
Figure 1 is the price action of the March 6 lows. To date the rally has gone 31.32%, greater than mean +2 on the 18-day (monthly trend) impulse move; the 5-day line has turned down. In addition, the stats for a corrective 13-week (quarterly trend) move are 13% +/- 3% which means that the 13-week line direction has also moved greater than mean +3 stdev.
This would suggest that buying now without at least an 18-day swing correction would be a high risk trade. The 18-day line, as at April 22, will turn at 758.19. As Figure 2 shows, this is just beyond the 50% retracement of the upmove (50% = 771.46). In my view such a correction would be inconsistent with the strong initial upmove. The strong move up implies a correction no more than to the 33.33% area.
Figure 2 shows there is a projected retracement area to 801 to 814 that encompasses the 33.33% retracement (805).
We have the linear cycles and seasonals topping out around end April to first week of May.
Putting all that information together, my best guess is we’ll see a pullback late this week to early next week to the 801 to 814 area. Following the pullback, we’ll see an attempt at the 894 area; but we should not see a monthly bullish-conviction close above 894. I say this not only because of the 12-month resistance at 894 but also because of the stretched correction on the 13-week.
Any monthly bullish-conviction close above 894 or daily close above 944 would suggest that a 1966 to 1982 type correction is in play. Until this occurs, I lean to a 1929 type correction of the 1982 to 2000 (S&P) secular bull market (or 1982 to 2007 DJIA bull market).
Note that Figure 2 also shows a potential Head & Shoulders targets ranging from 775 (preferred) to 792 (minimum). The preferred target is just above the 50% retracement (770) of the move up. If the S&P gets down to these prices, I believe it is unlikely that we’ll see anymore than a marginal new high above 875.65, if that.
I’ll do an update once the S&P completes the correction or breaks above 875.65 without attaining the suggested 801 t0 814 retracement zone.
FIGURE 1 18-day S&P
FIGURE 2 81-minute S&P