I have kind of been struggling with what to post tonight. I have decided to be succinct. The S&P 500 traded down toward the lower range of the long-term trend channel that we have previously discussed, and which is illustrated in the chart below. It also declined to approximately 4.6% of its 50-week simple moving average, as we have also discussed. I should not the similarity between these situations and the depth of the thrust down in August.
These declines were all followed by a rally back up toward this same 50-week moving average, as illustrated below. Given the speed with which this rally has progressed, I would find it surprising to see the resistance of this moving averaged violated without some sort of proportional pull-back.
At this point, it is difficult to say how deep that retracement will be. I am of the opinion that the lows of the recent downtrend have been set. I would find it encouraging from a bullish perspective, if the 1460 level was not successfully penetrated. That said, it is entirely possible that we might see another test of the lower range of the trend channel without substantially altering the overall scenario that I have been describing over the last few weeks. It will be an interesting week to watch.
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