How Low is Low? Part II
The S&P 500 Index (SPX – 3,639.77) has fallen 1,178.85 points or -24.46% from its 1/4/22 record high (4,818.62), placing it within the realm of a cyclical bear decline.
It is another mid-term election. Another major 4-year stock market bottom is possible. If the current January market decline is a cyclical bear within a secular/structural bull trend, then SPX will need to find a sustainable bottom near its long-term support.
How low can SPX decline before achieving a final bottom?
A comprehensive study of SPX strongly suggests longer-term support exists at 3,200-3,600, as shown by the convergences of the following technical studies:
(1) A head and shoulders top breakdown below neckline one at 4,223-4,322.5 and neckline two at 4,057-4,115 suggest -596/-704 points or SPX downside target at 3,626.5/3,410.5. Two consecutive continuation or runaway gap-downs on 6/10 and 6/13/22, respectively, reinforced another sell-off.
(2) A 1-month breakdown below 3,810.32 on 6/10/22 confirms another lower low and suggests -367.19 points or a projection at 3,443.
(3) Key first resistance is 3,810 (6/10/22 breakdown). Above first resistance signals a retest of the 6/10 and 6/13/22 gap-downs (3,900-4,000) and 4,114.5-4,133 (50-day ma and neckline breakdown).
(4) The 40-month ma has been dependable in deciding the structural trends of SPX over the past 40 years. The ability to find support near 40-month ma can lead to the continuation of the structural bull trend. However, rolling the long-term moving average warns of a structural bear. The current Jan 2022 cyclical bear nears a retest of the 40-mo ma (3,626.66). Will SPX rebound from pivotal support and resume its May 2013 structural bull? Or will the violation end the May 2013 structural bull and trigger the next structural bear?
(5) The S&P 500 Index (SPX) broke 3,815.20 or the 38.2% retracement from Mar 2020 to Jan 2022 rally. Below 3,815 warns of an SPX decline toward the 50% retracement at 3,505 and under severe selling toward the Aug 2020 V-pattern breakout (3,393.52), the Sept/Oct 2020 lows (3,209.5-3,234), and the 61.8% retracement (3,195).
(6) Aug 2020 V-pattern breakout above 3,393.52 suggests +1,201.66 points or a target at 4,595. SPX slightly surpassed its projection, trading to a record high at 4,818 before an overbought triggered the current cyclical bear decline. The earlier pivotal breakout at 3,393.52 now turns into critical support.
(7) Since the Mar 2009 SPX market bottom (666.79), the dominant and prevailing structural trend is a 13-year uptrend, currently rising between 2,770 and 5,002. However, the failure to clear convincingly above the top of the uptrend channel has triggered the recent cyclical bear decline. The violation of the 10-month and 30-month moving averages (4,360 and 3,843) warns at 3,411 or the middle of the structural uptrend channel.
(8) The 38.2% retracement from the 2009-2022 rally at 3,232.5 offers critical support.
SPX and the stock market are approaching a structural inflection point. The ability of SPX to find support at 3,200-3,600 hints at a 4-year mid-term election year bottom and the resumption of the May 2013 structural bull. However, a breakdown confirms the start of a structural bear market.