The Correction Continues - Midweek Update

The S&P 500 (SPY) was rejected at the 20-day Simple Moving Average (blue line) and fell back to the year-to-date Anchored Volume Weighted Average Price (“AVWAP” or orange line). The correction continues as the market squandered a tentative rally after the Fed kept rates unchanged. This tells us that the market still has sellers after last week’s oversold rally. During the first leg down, the SPY fell just past the 23% Fibonacci Retracement level with the April 19th low. If this low of $493.86 does not hold, then the next stop could be the 38% Fibonacci Retracement level at $480.

Now let’s revisit the Intermediate Cycle thesis. Although it is possible that a new 25-week Intermediate Cycle began the week of April 15th, it is not a good sign that the SPY fell below the 13-week Simple Moving Average. The cycle may extend with a few more corrective weeks, followed by a new rally. After an up-cycle, a corrective period of 2 to 12 weeks is within range. This is week 5 of the correction. It is also possible that a new Intermediate Cycle did start, however, it is a negative one, where the main trend configuration will be down.

It is worth noting that Chinese stocks continue to exhibit significant relative strength compared to the SPY. Observe how FXI is above both the 10 EMA and 20 SMA, whereas the US indexes have fallen below these levels.

However, Semiconductors (SMH) could not sustain their upward momentum.

Looking at breadth, the Nasdaq 100 Bullish Percent Index maintains its uptrend above the 10 Exponential Moving Average (EMA), although it did pull back.

Despite the downdraft in the indexes, the buying of equities continues by both Smart and Dumb Money.

…and this occurs as fear starts to re-enter the market.

The market may be following our Cycles Composite and Energy Cycle, which we will update in the Premium Section.

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