A stock market bottom is often a process and does not necessarily develop overnight unless it is V-type bottom. S&P 500 Index and most market indexes retain primary downtrend channels since peaking near their respective Nov/Dec 2021 and Jan 2022 all-time highs.
The mid-Oct 2022 lows remain pivotal supports as indexes are facing critical tests. The outcome of these tests can help to determine future directional trends. That is the resumption of the primary downtrend or the next oversold rally.
The bears remain in control of the stock market, as evidenced by the primary downtrend. The convergence of the two key moving averages (i.e., 50-day ma rising at 3,903.65 and 200-day ma falling at 3,999.12) signals another inflection point.
Remember, a sustainable market bottom takes time to develop. After trading toward extreme oversold conditions, one or more powerful oversold rallies develop. One of the keys behind a successful and sustainable bottom remains the quality of the rallies, preferably with higher lows and higher highs. The extent of the technical base and the subsequent breakout is equally significant. On the other hand, violation of the reaction low via a lower low warns of the resumption of the primary downtrend.
The SPX mid-Oct 2022 oversold rally faded at 4,100.96 (12/13/22 high), as it failed to breakout above pivotal resistance, coinciding with the Jan/Mar 2022 downtrends (currently 4,033-4,078), Jun/Sept 2022 highs (4,177.5/4,119), 50% retracement (4,155) from Jan-Oct 2022 decline, and the 8/23/22 gap-down (4,195-4,219).
A subsequent violation of the Oct 2022 uptrend channel (4,060), 200-day ma (3,999), and 50-day ma (3,903.5) warns of another correction. The Dec 2022 correction nears critical near-term support at 3,764.5 (12/22/22 low). Failure to maintain this support coupled with violation of Jul/Nov 2022 lows (3,721.5/3,688) and the 61.8% retracement from the Oct-Dec 2022 oversold rally) signal the resumption of the primary downtrend.
The next support resides at 3,584-3,637 (Jun/Sept 2022 lows) and below this to 3,491.58-3,505 (10/13/22 reaction low and the 50% retracement from Mar 2020-Jan 2022 rally), and 3,392-3,393.5 (bottom of the Jun/Oct 2022 downtrend channel and Aug 2020 V-pattern breakout).
Will a successful test of the downtrend channel trigger another oversold rally?
Key initial resistance falls to 3,903.5 (50-day ma) and above this to 3,999-4,033 (200-day ma and Mar 2022 downtrend), 4,078-4,101 (Jan 2022 downtrend and Dec 2022 highs).
Intermediate-term resistance remains at 4,307.5-4,325 (61.8% retracement from Jan-Oct 2022 decline and the May/Aug 2022 reaction highs). A breakout here confirms a trend reversal and hints at the start of a sustainable intermediate-term rally.