no rally but setting up for a medium term buy

From the chart the green arrow was a forecast of a short term oversold rally toward the SP500 1320 level which didn't occur as the stock market continued to move lower (and another -1% lower for the SP500) last week. As in the past several posts I cautioned of tendency of the major indexes (Dow, SP500, Nasdaq, and etc.) to retest their 200 day moving averages within a year. Today there were several cases of retest from the indexes, like the Nasdaq, but the Dow and SP500 didn't but are very close though (with SP500 being 1% above it today as indicated by the blue line on the chart.) With this retest being nearly completed and many medium term indicators now in oversold buy levels the risk/reward going forward for the next 3 to 6+ months for the stock market should shift bullishly to the upside.

Another short term oversold rally

Since last update (and using the chart from the last post), the SP500 did rally to and break above the green line to 1345 and then went back down with heavy selling toward the red line with close today at 1286. At this point I'm expecting another short term rally that should last about a week or so and with gains in the 2% to 3% range (probably below 1330.) From there should expect one more selling to push the SP500 back to retest today's low of 1284 (and likely brief break below it.) So could be looking for a medium term bottom by late June or later and afterward a summer rally attempt to break above this year's highs.

Very oversold rally soon but next day unclear

In a medium term bull market I would usually look for at least a short term rally here. But I unsure if the market had instead turned medium term bearish and if so then I would anticipate maybe another 1.5 to 2 percent correction down before getting the short term rally (the chart above of the SP500 illustrates the red arrow.) The other scenario is the market would get about an 1 percent rally first (as illustrated by the green arrow) and from there will see whether it'll move higher afterward (which would mean we're still medium term bullish) or as from previous comments... a move back down to new lows.

Weak internals hints of more downside

Was late getting this out due to busy weekend. The inability to move above recent highs with internal weakness (majority of individual stocks not moving higher and breaking to new lows on weakness) hints strongly that my 2nd scenario of medium term weakness of at least +5% in order to re-test the 200 day moving average. My 1st scenario of a moving higher did not materialize. So far now unless the major indexes can move back above last week's highs then the risk now is to the downside for the coming weeks.

Nice rally now to continue higher or at an end...

From last signal it took several days (and few sell-off days) before blasting higher for the major indexes. Now the indexes are at an important point of what appears to be a break-out higher of a bullish 'inverse head and shoulders' pattern from the chart below with the green line. Also there's a potential bearish 'double top' pattern in the chart with the red line. The stock market is near short term over-bought so there could be some near term consolidation/pause before one of these two patterns take control. My take is that the bullish pattern will be in control... but we'll have to see what develops. I also marked another red line of the last time the indexes (using the SP500 below) last 'touched' its 200 day moving average. General rule, the major indexes usually don't go beyond 12 months without re-touching its 200 day moving average. Like my last post noted, the major indexes will either continue higher and then 'crash' back later toward the 200dma... or break down lower now toward the 200dma and then move strongly back higher later (that will depend which of the two bullish/bearish patterns take control in the coming days.)

The pause/pullback is given way to a low soon...

The stock market gave up little ground since last week's signal for a pause/pullback and is now hinting of a possible short term low with a set-up for a rally. For the medium term, I'm uncertain if the stock market will continue to grind higher from current levels or that it'll content with consolidating and eventually sooner rather then later the need to retest it's 200 day moving average. In most cases, the major indexes will retest their 200dma within 12 months. It has been almost 7 months since they last touched their 200dma. So the uncertainty is will the major indexes continue higher for several more months and then crash back down (like beginning of May last year because of the 'flash crash' when it finally retested their 200dma after 10+ months.) Or the stock market will get over it by moving back lower (over +5%) and retest by summer time and then power back up afterward.

The chart below is the Nasdaq and will likely retest the 50dma (blue line) and because of short term oversold should get a short term rally. The red line is the 200dma and the uncertainty for the medium term is whether the stock market will retest it soon rather then later.

Great short term rally in need of a pullback/pause?

Very strong rally in the past 10+ days usually a very good indication of further upside for the next 6 to 12 months (or at worst, limited downside from the March bottom level.) While the major indexes have moved up strongly... Dow, SP500, and Nasdaq, there were some technology sectors that lagged or gotten hit to the downside such as networks and semiconductors. So while the long term view (6 to 12+ months) is still bullish for the stock market, the short term (from a few days to a few weeks) is due for some pullback. For the medium term (1 to 3+ months), the recent very strong rally has a history of being forwardly bullish but I would still be cautious of a bigger pullback or even a retest of the March lows if the pullback is more than +3%.