SPX monthly has put a long tail on its candle that had poked down below 2200. The best correction target is the 50% Fib at 2030 to the 2100 support shelf. But before that could happen (recall we’ve anticipated chop, grind and volatility as opposed to a nice, clean price recovery) the 38% Fib is back in play as support around 2350.
Another note is that a 62% Fib is near 1700 (with no real visual support associated, which could open up the big test of major support at 1500. If this bear were to approach the total bear market pullbacks of 2002 and 2009 it would explore these lower levels. But first things first…
The daily chart shows that SPX has nearly hit its EMA 20 (NDX poked through its EMA 20) and that is a logical place for a pullback (futures negative). Short-term support comes into play at 2450, which is near the top of the 38% area shown above. Meanwhile, if SPX should shake this morning’s pullback off thick resistance enters the picture at 2725 to 2850. That would be formidable.
Options moving forward in order of likelihood (in my opinion)
Regardless of whether the current bounce has more upside…
- A drop to test the low (2191.86) in April that could make a new low as a shakeout and test the 2030 Fib area.
- A drop to test the low in April that makes a higher low.
- An eventual drop to test the 62% Fib or lower.
- The current ‘V’ bounce rally is THE rally that recovers the market quickly.
Within all of this I continue to lean toward the 2030 area as opportunity. Backing the view is the ‘all or nothing’ monetary and fiscal policy response on steroids. It has come a lot quicker than it did in 2008-2009. I could be wrong in that it’s finally the “greater depression” that some have been calling for ever since 2008, but as of now that is not my view. Inflation is my view. But first the market needs to shake off the deflation scare, arrest the rush to US dollars and put in a firm bottom, which I think the odds are is not in yet.
