With the S&P500 rushing up to new 7 weeks highs this evening, isn’t time to consider the strength of this recovery? For this purpose, we will use the following FinGraphs’ Investor’s View or a combination of a Weekly (1), Daily (2) and Hourly (3) chart.
FinGraphs automatic interpretation is calling this situation a “Potential intermediate bottom in a Downtrend”. Indeed, both the longer term Weekly (1) and medium term Daily (2) charts are in Bear trends while the Hourly (3) shorter term chart is heading up (Bull).
Looking at the situation in more detail, we will first turn to the longer term Weekly chart (1). It defines the perspective over the next couple of quarters. Although it has turned down since the 2ndquarter last year, the move is still considered as being only a correction (grey price target projection), which nevertheless still has some potential down, both in terms of time and price (grey oval). A full fledged Bear market would only be confirmed if it was to break below these corrective targets or with current volatility below circa 1’700.
We will consider the Daily chart (2) last. Let’s now turn to the shorter term Hourly chart (3). It is heading up in an impulsive move (green price projection) which could approach and even pass the 2’000 levels over the next couple of weeks. Let it run, but keep close stops as both the Weekly (1) and the Daily (2) are still heading down (remember we are in countertrend, i.e. “Potential intermediate bottom in a Downtrend”).
Now considering the Daily chart, we will draw a parallel between the situation now and that of early 2008 as we had already done in a recent publication in mid January. As we had said at the time, monitoring the February rebound would be crucial to understand if the current Weekly correction (1) was to turn into a full fledged Bear market. We are now well engaged in this rebound, let’s look and the Daily charts, starting with the one from early March 2008:
From mid January, the S&P 500 had rebounded (as it pretty much just did), yet the second leg of this rebound towards end February didn’t quite manage to break-out above its previous countertrend highs (achieved in early February 2008). It also stopped short of previous lows (previous supports, then resistance) around the 1’400 mark. Prices then started to decline rapidly, the Weekly chart then turned impulsive and the Bear market that we know was underway.
Now fast forward to today, with the current Daily chart:
It is quite similar, yet that much different. The sell-off last August was much deeper than the one in 2007. Hence, the break below these levels earlier this month is not as blatant. On the other hand, we did make new lows during February, which wasn’t the case back in 2008, yet the rebound also seems to be stronger.
We would hence choose to focus on the following,
Longer term (next quarters): prices haven’t broken down as clearly below their August lows as they did in 2008. The Weekly chart is still in what is considered a FinGraphs correction, i.e. not a full fledged Bear market. The trigger is around 1’700 or still quite some way lower (13% lower)
Medium term (next months): the Daily chart (2) is still in a downtrend with targets pointing below 1’800 and possibly towards 1’700, our crucial levels mentioned above. The Risk Index is not clearly Oversold yet; this was also the case at the end of February 2008.
Shorter term (next week or so): the rebound seems quite lively, yet there is strong resistance ahead of us around the 2’000 mark. These levels are pretty much where our Hourly chart (3) is leading us.
Our best guess would be that this longer term Weekly correction continues into the 2nd quarter, yet possibly remains as only a correction for now, that the Daily chart resumes its downtrend during March to go test its lows sometime in April or early May, and that shorter term the Hourly chart runs into resistance around the 2’000 levels.
FinGraphs is a product by Management Joint Trust SA, Geneva, which offers a system of statistical analysis and automatic interpretations of financial data. All opinions, news, research, analyses, prices or other information in the article above are provided as general market commentary and do not constitute any financial advice.