Market Still at Risk of Further Decline
As expected (see the last email report), the market staged an advance in late November, but it failed to follow through to new highs. This constitutes a failed test of the end of the correction.
Be very cautious in this market. The risk of a further decline is still present. Even if the market doesn't fall much more, we could still see continued range volatility for weeks or months to come, and the indexes could continue to swing up and down in a broad range.
Quality stock setups are forming, but they still need time to develop for optimal entries. Brush up on the 50/50 Reversal Riser strategy, as that is what we see the most after a deep market decline.
There will be plenty of great opportunities when the market eventually finds support and turns upward on strength.
Here are some key things to watch on the weekly chart of the S&P:
There is a cluster of 7 weekly bars (bear flag). Until price closes back above the 50-EMA, the odds favor a break downward.
The S&P 500 continues to trade below its weekly 50-EMA, and the 10-SMA is in position to potentially cross below the 50-EMA. A moving average crossover would be bearish.
RSI-20 is 41. Below 50 means the market is too weak to sustain an upward move. It must get above 50 for the market to have a chance at ending the correction.
The last support level for the S&P is 2,603, and it could be retested in the next couple weeks. And there is room below that for the market to fall further if we don't see a sharp rebound.
We're still watching for a Santa Claus Rally after Christmas (a strong market bias), so stay tuned. Markets can turn quickly, and usually when we least expect it.