The broad market continued to rally through May 20th -- even shrugging off a downgrade of US debt over the weekend. But on Wednesday (May 21st), a poorly received US Bond auction finally sent the market spiraling downward 100 points. That was enough to generate some sell signals.
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Stocks have continued to rally, after last weekend's positive tariff meeting between the U.S. and China. $SPX gapped higher on Monday, blasting right through former resistance at 5700 and 5800, and thus establishing a new bullish pattern on its chart.
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The market rallied early this week, peaking out at about 5700 on $SPX. A modest pullback has taken place since then. There is resistance from there on up to 5800. A close above 5800 would be bullish. Otherwise, the SPX chart remains bearish.
There are multiple support areas on down to the early April lows at 4850-4950. They are marked with horizontal red lines on the $SPX chart in Figure 1. There is one gap left on the chart (circled in Figure 1).
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$SPX has risen for eight days in a row and is off to a positive start today, which would make it nine. This type of action has been accompanied by buy signals from breadth, equity-only put-call ratios, and MVB -- not to mention short-term buy signals such as "$VIX crossover" and "oscillator differential." Still, as impressive as all that is, the $SPX chart is still bearish because it's still in a potential downtrend.
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It really feels like the market is rallying strongly, and perhaps the bottom is in. But the evidence is not clear on that. Even though $SPX has rallied nearly 400 points from Monday's lows, this is still a bearish $SPX chart. First of all, the pattern of lower highs and lower lows is intact. Second, $SPX has not overcome resistance in the 5500 area. Even if it were to rally above 5500 somewhat (perhaps getting nearer to the now-declining 200-day Moving Average) and then turn back down, that would still leave a pattern of lower highs on the chart albeit with a less steep slope on the downtrend line. In my opinion, only a close above 5800 would remove the negativity from this chart.
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