In summary:
· Last Friday’s strong reversal formed a bullish reversal day, signaling potential for further ranging action next week;
· Our bias remains bearish as far as the moving averages caps the bounce; as detailed above, 200 day moving average would be the next target.
· Bulls need to close back above the 3 moving averages to show the correction is over.
Detailed analysis is as follows:
S&P corrected lower from the 1991.39 record peak for 11 days to last Thursday’s 1904.78 low (Aug 11), right into the initial support cluster including the 1902.17 prior high and 50% retracement of the 1814.36/1991.39 rise, before consolidating.
The short-term 10 day moving average (pink) has crossed below the 20 and 50 day moving averages, turning the chart view negative. The MACD and RSI are both in the negative territory, pointing lower.
Chart 1
S&P daily chart as of August 8, 2014
Whether last Thursday’s 1904.78 low is the corrective low, and where the market could trade next week, let’s take a look at how the past corrections ended.
Comparison of Past
Corrections
|
||||
Time span
|
# of trading days
|
Total points from high to low
|
% change
|
|
2010
|
||||
Jan 15 to Feb 5
|
14
|
105
|
-9.12%
|
|
Apr 26 to May 25
|
22
|
178
|
-14.61%
|
|
2011
|
||||
Feb 18 to Mar 16
|
18
|
92
|
-6.85%
|
|
May 2 to Jun 16
|
33
|
112
|
-8.17%
|
|
Jul 7 to Aug 9
|
24
|
254
|
-18.68%
|
|
Aug 31 to Oct 4
|
24
|
155
|
-12.62%
|
|
Oct 27 to Nov 25
|
21
|
134
|
-10.38%
|
|
2012
|
||||
Apr 2 to Jun 4
|
44
|
153
|
-10.75%
|
|
Sep 14 Nov 16
|
44
|
132
|
-8.95%
|
|
2013
|
||||
May 22 to Jun 24
|
23
|
127
|
-7.53%
|
|
Aug 2 to Aug 28
|
19
|
83
|
-4.86%
|
|
Sept 19 to Oct 9
|
15
|
82
|
-4.74%
|
|
2014
|
||||
Jan 15 to Feb 5
|
15
|
114
|
-6.15%
|
|
Jul 24 to Aug 7
|
11
|
88
|
-4.43%
|
|
Average
|
23
|
129
|
-9.13%
|
|
Chart
2
S&P
daily chart to show the three corrections in 2013
As shown in the Comparison table above, the average correction drop was 129 points since 2010, lasted 23 trading days on average and ended below the 50 day moving average. If S&P were to drop 129 points, that would take the market down to 1862, where the 200 day moving average (blue line), the 50% retracement of 1731.92/1991.39 rise and 76.4% of the 1814.36/1991.39 rise (as marked on the chart) are located.
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