S&P500 made a Channel Down bottom. Rebound or break lower?

May 10, 2022

The S&P500 index (SPX) made today a core technical Lower Low (bottom) on the Channel Down pattern that has been trading in since the January 04 All Time High (ATH). Last time the price hit that Lower Lows trend-line, it held and after 3 weeks of high volatility, it posted an aggressive rebound towards the Lower Highs (top) trend-line of the pattern, just below hte 0.786 Fibonacci retracement.

As long as the Lower Lows trend-line holds, it is more likely for S&P500 to rebound within a 1 month horizon, towards the Lower Highs trend-line around the 0.786 Fib, which is at 4480. The 1D RSI Channel of Higher Lows and Higher High (i.e. bullish divergence against the bearish price action), remains also intact, in fact yesterday bounced off the Higher Lows trend-line.

Keep your stops tight though if you are on a tight margin as a 1D candle close below the Channel Down, could be technically interpreted as a bearish extension signal. Typically such big stock market corrections seek their 1W MMA200 (red trend-line) before they make a Bear Cycle bottom and start the new Bull Cycle. That would almost be a -28% correction from the All Time High. As for the long-term bullish trend, in order for that to be restored, the index would have to break above the 4635 Resistance, which is the previous Lower High.



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