Higher lows and higher highs?
The 6/17/22 oversold rally continues. The mid-June rally has gained momentum, and traders wonder whether this is the start of something big.
Two pertinent questions remain unanswered. First, is this an intermediate-term bottom? Second, how far and how long before another pullback occurs?
Oversold rallies are deceiving as they can be sharp and explosive. There are no definitive rules of thumb as to how long they last. It depends on several factors, including geopolitical, macro, micro, and corporate news, and the severity of the problems.
An oversold rally could last for days to a few weeks and several months. After a brutal market selloff and the ensuing rally, traders often look for signs that the rally differs from past attempts.
Most intermediate-term bottoms (except for V-type patterns) require consolidation or a backing-and-filling process to rebuild the technical base necessary for the next sustainable rally.
A market bottom takes time to develop. The basing effort is a work-in-process that determines two things - the validity of the bottom and the sustainability of the next trend.
A higher-low and a higher-high pattern suggest a bottom is developing with the possibility of the trend reversing direction.
On 6/17/22, SPX recorded a low of 3,636.87. A higher-low pattern occurred on 7/14/22 when SPX successfully rallied from a low of 3,721.56. The higher low also led to a bullish short-term ascending triangle pattern.
A surge above 3,495.87 on 2/20/22 confirmed an ascending triangle breakout and a 50-day ma breakout.
A successful retest of the 50-day ma (currently at 3,934) on 7/26/22 reaffirmed the summer rally. The ascending triangle breakout also renders an SPX projection at 4,255.
SPX is currently approaching an inflection point as it tests the 6/2/22 reaction high at 4,177.51. Also, formidable resistances reside near the Jan, Feb, and Mar 2022 lows at 4,222.62, 4,111.65, and 4,157.87, respectively.
A convincing close above 4,177.51 and preferably above 4,222.62 would reverse the bearish pattern of lower highs and lower lows, reaffirming an intermediate-term market bottom and extending the summer rally.
However, the dominant trend from January remains down, as depicted by the declining 200-day ma (4,341.5) and the falling downtrend (4,365).
Will the 6/17/22 rally fade near this critical resistance by the end of summer to early fall?