S&P has started an upward bounce after reaching oversold levels at 1772. This is most probably a wave 4 that could push the index towards 1805-10. The market I believe is not ready for entering long as I feel the downward correction is not over yet. Moreover there are increased chances to see a right hand shoulder being formed as shown in the chart below.
If a right hand shoulder is formed we should be very cautious if the neckline breaks as this could push the index towards 1700-1730. Currently prices have unfinished business to the downside. If we break below 1790 then we should make a new lower low soon and then bounce up towards 1810 resistance.
If support holds, we should expect 1805-10 to pose strong resistance. If that resistance is broken we should expect 185-20 to be tested next. Trend is down and bulls should be patient to enter the market as volatility is expected to rise today when we find out more details about Fed’s thoughts on QE and the potential tapering.
Concluding we believe that the market has more downside as part of the corrective process that started from 1850. On the longer term we remain bullish and we will try to look for a valid bottom to enter long positions. As always, thank you for taking the time to catch up on my thinking.