Another new leg up to above the all-time highs of 2134 for the SP500

Since the last post where I was expecting an important medium term bottom, the SP500 has since rallied 16%. I did commented in March 23rd to anticipate a 3 to 5% pullback... that didn't happen until a month later. So now that a 3% correction has occurred the market condition is setup now for another new leg higher. Looking for a rally to new all-time highs in the coming months.

At extreme medium term oversold, expecting this week is THE bottom.

From last post, the SP500 dropped another 5% before hitting 'A' bottom. But the rally up was only back to the level when I wrote the post. The global fears of the oil plunge and of the China slowdown sent the global stock markets in heavy selling since the beginning of the year. Looking at charts of the major indexes and technical indicators, there are hints of a bullish double bottom patterns developing and positive divergences. I believe 'THE' bottom is in this week for the global stock markets or at least a 10% rally from here.

Global fears pulls the stock market down to medium term oversold

From the last post, the set up was to look for one more move down before reaching an important bottom and rally to new highs. That didn't happen as fears of a China slowdown, plunge in oil prices, and the Middle East crisis have the global stock market selling sharply down. The move down has been much more than anticipated and is much concern than before about the health on the long term bull market. Looking at the first chart below the SP500 is now closing in on its fall season lows. As at the fall season lows, the stock market is at medium term oversold and I am anticipated at least so sort of +5% rally to occur soon.

The above chart I have label three lows for the SP500 with the current low at label #3. At the bottom chart below is the SP500 back in the year 2011. As the charts below illustrate, there is some similarity between the price patterns. I anticipate the labels 1, 2, and 3 on both charts is hinting to me that the SP500 is currently setting up to rally higher in the coming months.

This week... rallied off short term oversold, at meditm term oversold, and Fed to hike interest rate

Was hoping to get this post out on Monday but wanted to wait until the Fed meeting to raise interest rate today. Anyway, since the last post, the stock market formed the pattern I was looking for... just not exactly what I was looking for. I was looking for a brief move down first but that didn't happen as the market bottomed and the rally back up was higher than anticipated. Monday the stock market was short term oversold so I was anticipating a brief rally early this week. Medium term, approaching oversold but would like to see more oversold in the stock market to get a solid buy signal. So even though stock market could be at short and medium term oversold buy signals I wouldn't be surprised in the next few days the market will move back down below Monday's lows before making the final bottom. From there the stock market should attempt to rally big back above the highs set this year. For the Dow, SP500, and Nasdaq, rallies to new all-times highs.

Short term oversold but medium term oversold weeks away...

From the last post, the SP500 did rallied another +2% before turning down. The rally high of 2116 didn't quite make it back toward the all-time but it did make it back above the breakdown point in mid August. Being short term oversold, will expect the stock market to attempt a short term rally by mid week after some brief selling Monday and Tuesday. The chart illustrated below shows the SP500 broke out of a Double Bottom pattern in early October and reached around its upside breakout target at the beginning of November. I anticipate a similar but smaller Double Bottom pattern could be forming in the coming weeks. The middle section of the rally should run into resistance and selling near the 200 day moving average (currently at 2007) and then a retest of this week's low to be follow. By that time, the stock market should be approaching medium term oversold and a setup for another move higher. I will update back in a several weeks on how this stock market scenario is play out.

Nice month long rally but at short and medium term overbought now

From the last post, I hinted that the major indexes should be back toward their summer highs within 6 to 12 months. Since then the indexes formed what is called a bullish "Double Bottom" pattern and broke above it early this month October. Going forward, I believe there will be a pause and likely correction back down a bit in the coming weeks. There could still be another 2% or so upside but I believe major indexes will give back about half the move up since early October. That put the support range at the 1975 to 2000 level for the SP500. From the stock market should found a bottom a move forward back above the summer highs.

Worst drop since June 2011 and one of the worst 6 day drop

The last two posts I cautioned about a narrowing price range and internal weakness but the last post I was anticipating a resolution with a break out of the narrow price range would be... with caution... to the upside mainly due to the positive price reversal back up on August 12. Wow, was I really wrong on that one. The break out turned out to be to the downside... -11% in 6 days... one of the worst on record. The largest was -21% back in October 2008. With the SP500 closing below its 200 day moving average, it closed as the 3rd longest streak, 3.8 years above it 200DMA, before closing below it on Monday. The longest being 7 years from October 1990 to October 1997. So what now? Obviously, the stock market is extremely oversold on the short and medium term basis. Majority of my medium term readings are extremely oversold but several important momentum readings are now only crossing over between neutral and oversold... due to the nature of the narrow price range of the past 6+ months. Another question to ask is are we heading to a bear market? I don't think so. I believe we are only in a +10% correction mode which happens to correlate with the 200DMA record I mention above. With the 10% correction occurring on Monday it marked the 3rd longest streak without a 10% correction. I believe we are still in a bull market and while the stock market may still probe several percentages lower in the coming weeks I believe 6 to 12 months from now the stock market will attempt to break out above its all-time highs of this month.