The next rally
Posted by Danny on June 3, 2013
A few weeks ago, when we last covered the S&P 500, I warned that the market was likely to give us a few good down days in the last week of May, with a target of 1600-1625, and then another rally. See: When everybody expects the same thing…
We got the down days and the S&P closed at 1630 last Friday.
Are we now ready for another rally?
Let’s have a look at the chart (click for larger image):
A further drop to 1600 remains possible, but that’s where we should see strong support. A drop below 1600 would break the back of this multi-month rally, and open the door for a drop to 1500.
If the market doesn’t recover this week, then we are likely to record the first negative lunar green period this year. A negative green period is not rarely seen at the start of a prolonged period of weakness.
Meanwhile the orange line in my Earl2 indicator has turned down, which is the first sign of a top. If it crosses below the red line, then a downtrend will be confirmed and we can start looking for new signs of a bottom.
So, a lot depends on the strength of the next rally. If it is overly weak then we are probably starting a consolidation period. If the S&P closes back above 1650, then the rally will be back on and probably stretch into July.
A lot of people have been asking about my LT wave chart.
Here is the chart for May and June (click for larger image):
For May the LT wave has not worked as well as it did in previous months. It understated the strength in the first part of the month, but it still correctly indicated the weakness at the end of May.
For June we see possible lows in the first week and around June 18th. There is a strong period around June 11th and 12th, where we could see a rebound if we get lows this week. The last week of June is showing strength as well. Looks like a roller coaster month.