The path of max confusion

After a volatile week the S&P 500 is once again testing the 2000 level, a major breaking point. Is the market just bending, or is it about to break down? This is always a difficult question. Markets tends to follow the path of max confusion, shaking out as many passengers as possible before making a significant move. Volatility tends to shake out market passengers and when the bus is nearly empty it is ready to go again…
Let’s have a look at the S&P chart (click image to enlarge it):

S&P 500

The pullback that started in early November keeps grinding. The good news is that the overbought conditions have gradually subsided and the technical situation is improving. The slower Earl2 (orange line) is now firmly in bottom territory, which sets the stage for a nice santa rally as long as the support near 2000 is not decisively broken to the downside.
A drop below 1990 would probably send the S&P 500 back to the Aug-Sep lows and then we would have to wait a bit longer for the next tradeable bottom.

Good luck.

By Dan

Author of LunaticTrader and Reversal Levels method. Stock market forecasts based on proprietary indicators, seasonal patterns and moon cycles.

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