SPX rallied 688.41 points or 18.93% during its impressive summer rally from 6/17/22 to 8/16/22. SPX soon traded to overbought levels as it encountered formidable resistance at 4,325.28. In 14 trading days, SPX suffered a sharp 438.53 points setback, declining 10.14%.
Is the 9/6/22 low at 3,886.75 temporary?
Interestingly, the recent SPX decline stopped at the psychological 10% threshold.
Technically speaking, SPX may have recorded another low as it rebounded from pivotal support at 3,886.75 (9/6/22) as this level coincided with the Jun 2022 uptrend (3,920), the 61.8% retracement (3,900) from the Jun-Aug 2022 rally, and the 1-month head and shoulders bottom breakdown downside projection (3,875).
Is this the start of another oversold rally?
The January 2022 primary downtrend remains intact, and as such, any rallies are considered oversold rallies.
The primary challenge for SPX headed into the September seasonality weakness period is to maintain above 3,886.75 (9/6/22 low) to retain a third higher-low pattern (i.e., Jun, Jul, and Sept lows).
Also, it is crucial that SPX quickly surge above several key resistances to prevent the market from rolling over. The rolling over of the 50-day and 200-day moving averages are classic bear market conditions. Failure to clear resistances increases the odds for SPX to resume its primary downtrend.
SPX nears key initial resistance at 4,018-4,025, corresponding to the 9/2/22 high and the 50-day ma. A breakout extends the recovery toward 4,120-4,147 (the extension of the head/shoulders neckline breakdown) and 4,195-4,219 (8/22/22 gap-down, 8/26/22 right shoulder and negative outside day).
The 200-day ma at 4,278.5, the 8/16/22 high, and also the head at 4,325.28 remain intermediate-term resistance. A breakout confirms that this is more than an oversold rally.
The performance of SPX during September may help to decide the next primary trend.