Stock Market Begins Potentially Violent Rally

| December 29, 2018

An intermediate-term low may have formed in the stock market this week, although we would need to see additional strength next week to confirm that development. Given the extreme nature of the decline from the high in September, the developing oversold reaction will likely be equally violent in nature.

The magnitude of the current decline phase signals the likely transition to a bearish trend and favors additional intermediate-term weakness in early 2019.

S&P 500 Index Weekly Chart Analyses

The following technical and cycle analyses provide intermediate-term forecasts for the S&P 500 index. For short-term outlooks, see the latest short-term forecast.

Technical Analysis

The index closed sharply higher this week, reacting off of recent lows of the downtrend from October and continuing a test of congestion support in the 2,400 area. Technical indicators are bearish overall, strongly favoring a continuation of the decline.

Cycle Analysis

We are 4 weeks into the first decline phase of the cycle following the intermediate-term cycle low (ITCL) that occurred during the week ending November 2. A half cycle low (HCL) may have formed this week, although we would need to see additional strength next week to confirm that development. The magnitude of the current decline phase signals the likely transition to a bearish translation and favors additional intermediate-term weakness. The window during which the next ITCL is likely to occur is from February 22 to April 19, with our best estimate being in the March 8 to April 5 range.

  • Last ITCL: November 2, 2018
  • Cycle Duration: 9 weeks
  • Cycle Translation: Bearish
  • Next ITCL Window: February 22 to April 19; best estimate in the March 8 to April 5 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Intermediate-term Outlook

  • Bullish Scenario: A weekly close above congestion resistance in the 2,600 area would predict a return to the middle of the Bollinger bands at 2,755.
  • Bearish Scenario: A reversal and weekly close well below congestion support at the 2,400 level would reconfirm the downtrend from October and forecast additional losses.

The bearish scenario is more likely (~70% probable).

Category: Commentary, Market Update


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