In our last update [see: Aug 23 Update on NYSE] we noted that the index’s difficulty in pushing above the .786 Fib at 10759 would likely result in a dip to test the SMA200 near the .618 at 10369.
The subsequent bounce has, in my opinion, been overdone. NYSE has criss-crossed the .786 at 10,759 15 of the past 30 sessions — not a great sign for the bulls. I think it’s more likely to break down from here and (at least) backtest the .618 at 10,369.
It wouldn’t be a big move, but it would jibe with my views on SPX of mostly sideways action through the election. Note that the SMA200 should continue trending higher, arriving at the .618 (also, proximate to the 2007 highs) around election time — providing additional support in case it does break down.
As it turned out, NYSE did run out of steam shortly after that post. After Aug 23 (the yellow arrow below) it danced back and forth across the .786 for two weeks before finally breaking down on Sep 9. Even then, it held on for another month before the rising white channel finally broke down.
As expected, the selloff was mild. It arrived at the 2007 highs a few days before the SMA200 reached the .618. Like everything else that wasn’t nailed down, Nov 4 marked the bottom. It has rallied strongly since then, almost reaching the .786 again this past week.
So, it’s an excellent time to look at next steps, especially in light of our new big picture forecast for the next two months.
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