Since the October low, the SPX has carved out two 6-7 week rallies interspersed with a drop into a December 22 low.
The Bear Flag in the 3rd week of December had many players betting on immediate breakage to a test of the October low… or lower.
But the elevated year-end tax selling when the Santa Claus rally failed to appear left stocks and sentiment washed out.
The big question is whether the October low marked the first leg down in the bear, an Intermediate Wave 1 down if you will, followed by an A B C corrective Wave 2 retrace?
If so March is going to be a manic bear.
All trading is contextual.
By that I mean that there are three trends operating concurrently — the Primary, the Intermediate and the Minor trends.
They interact with each other like a double helix except that there is a third strand making the dynamics of determining the trend all the more tricky.
In my experience after more than 35 years as a trader, I have seen that markets play out in threes — be it 3 Drives To A High (or low), a Head & Shoulders, a Cup & Handle, or a valid trend line connecting 3 points.
This is why my 3 Period Swing Method utilizing the daily, weekly and monthly time frames (and even the hourlies) does a good job of integrating and defining the position of the market.
First, let’s take a look at the SPX Daily Swing Chart.
There were 3 Drives up into the early February high.
Importantly the 3 Day Chart turned down directly off the high (black ellipse).
The 3 Day Chart turns down with 3 consecutive lower daily lows.
These are just lower daily lows… not necessarily 3 consecutive lower CLOSES.
From that position, the first time you get two consecutive higher daily highs (again not necessarily on a closing basis), I get a sell or short setup.
This is my daily Minus One/Plus Two sell pattern.
When the 3 Day Chart is pointing down it is a Minus One.
Any time you get two consecutive daily higher highs generates a Plus Two satisfying the criteria for my Minus One/Plus Two sell signal.
Since that signal, the SPX dropped some 200 points in seven days.
Moreover going into Friday’s low it turned up its Daily Swing Chart only once.
In other words it traded above a prior days high only once — last Thursday.
The index failed to follow through to the topside, gapping down to test the 200 day moving average before bouncing into the close leaving a little Bottoming Tail…a Lizard buy signal.
This is a new 10 day low with the open and the close in the top 25% of the range after being lower on the session.
Friday’s buy setup flagged in Monday morning’s Hit and Run Report generated a Gap and Go on Monday, but once again the index could not hold up, closing near session lows right on the rising 50 day moving average.
Is this a successful test of Friday’s Bottoming Tail or the precursor to accelerated momentum below the Close Only Trend Line from the October low in green?
A monthly SPX shows the index has been rejected from its declining 20 month moving average while the October low held its 50 months.
Notice the rising green trendline connecting the MARCH 2020 closing low with the October 2022 low that ties to the 50 month ma currently.
Below that opens the door to the yearly purple trend line.