S&P 500 - November 18, 2010

We said that market was at support. We said it was oversold. And we said we expected a bounce.

Market did a step forth and a step back for a day and some hours, and finally on with a bounce.

I said that we had enough waves for a complete correction.

This is what I mean


A zigzag for intermediate 4

I also said that on the 34-hr futures data, I could make a vase for a complete complex correction. This is what I meant


There, of course, can be a plethora of other wave formations that would extend the correction even if the broader count is correct.

How price behaves from here, and the durability if the recent low will tell us the story.

For now, we know that index got oversold into a drop that stopped right at support provided by the lower edge of 1175-1225 band, 34 EMA, and the lower line of a channel we have had on the daily chart for a long time


Notice that index hit it high at 1200 which is the half-range of 1175-1225.

As long as index stays above the 1175 area, it’s either consolidating or advancing. Shorter term, as I mentioned intraday, a move below 1187 can cast doubt on the recent low being the end of the correction/decline.

A move above 1200 can further enhance the chances of correction being over, especially if it is accompanied by good expansion of breadth and momentum.

Daily volume expanded. Daily breadth wav very good


It is not all that surprising for daily breadth to be good after a sharp breadth. There usually is no shortage of shorts to whip into a rally. What matters is a continuation of breadth expansion.

I pointed out the net new high a couple of posts ago and said:

“number of net new highs that has crept below zero. Last two occasions this happened, we had bottoms. Last 4 occasions it happened, we had bounces.”

Well, here we are with a bounce, and net new has leapt above zero – something to keep an eye on

So, bottom line is that we had sharp drop into support and we now have an oversold bounce off the support. There is a chance for the correction to be over, and for the bounce to be the beginning of another wave up. We have a potential low pending further strength by price and expansion by breadth.

I reiterate what I wrote intraday:

If we have seen the bottom of Intermediate wave 4, and are now on Intermediate 5, then

- I would ideally want S&P not to move below 1187

- Expand breadth as I measure using McClellan Oscillator

- Improve % of issues above 50 MA

- Expand daily momentum towards overbought areas

Straight forward uptrend criteria for the bulls to meet

So much has been riding on a universal hate for the US currency. USD is at support


If it refuses to fall, it may force another round of selling on the broader equity market – keep an eye on it!
OEW pivot support at 1187 and 1176. Pivot resistance at 1227 and 1240.

Long term trend is up. Mid-term trend is up (early signs of danger have appeared). Short term trend is down.

Have a Nice Evening!