Market overbought near term but oversold long term?
Daily SPX Chart
Since setting an all-time of 4,818.62 on 1/4/22, the dominant SPX trend remains the primary downtrend between 3,514 and 4,352. The 6/17/22 rally nears a critical juncture as it challenges pivotal intermediate-term resistance at 4,323-4,367, coinciding with the 200-day ma, Jan 2022 downtrend, and the 68.2% retracement from Mar 2022-Jun 2022 decline).
A near-term overbought condition coupled with a failure to breakout warns of a near-term consolidation toward 4,147-4,177.5 (8/10/22 gap up break out) and below this to 3,946-3,962 (7/20/22 breakout and 50-day ma).
Will the consolidation alleviate an overbought condition and set the stage for the next sustainable rally to the Jan 2022 record high?
The RSI overbought/oversold indicator completed a symmetrical triangle breakout on 7/20/22 above 56. The break out quickly led to a sharp rally to 73.37 (8/16/22), resulting in an overbought condition in SPX. Although RSI can still retest its 11/5/21 high at 76.69, SPX will struggle to break out above formidable resistance at 4,324.5-4,367 near term.
With RSI fading near the overbought level at 73.37 (8/16/22), a pullback toward the extension of the triangle breakout at 54 will help alleviate an overbought condition.
Will this result in an SPX retest of support at 3,946-3,962 (7/20/22 breakout and the 50-day ma)?
A successful test of support may trigger a retest of the 1/4/22 all-time high (4,818.62) and possibly set a new record high later in the year.
Monthly SPX Chart
Since the 2009 market bottom, SPX has successfully found support when the RSI overbought/oversold indicator traded to oversold levels near the low-to-mid 40s. The ability to rebound from the oversold levels led to the resumption of the 2009 structural bull trend, suggesting the SPX declines were cyclical bears.
Interestingly, the previous five (5) cyclical bears found crucial support along the mid-point of its 2009 structural uptrend channel. The one exception is the pandemic-induced cyclical bear, which briefly violated its support but quickly rebounded above the breakdown level the next month.
Fast forward to 2022, the sixth decline in the past thirteen years corresponding to the Jan-Jun 2022 SPX decline may be another cyclical bear decline. The ability of RSI to maintain the low-to-mid 40s coupled with SPX's successful test of the midpoint of its 2009 uptrend channel (currently 3,515) hint at the continuation of the May 2013 structural bull.
The directional trend and the spread between the two monthly moving averages are worth reviewing. The distance (400) between the 10-month ma (4,322) and 30-month ma (3,922) is extensive, suggesting a high-level consolidation is needed to close the spread before the onset of the future primary trend.
Also, because SPX is trading below the 10-month ma (4,322) but has rebounded above the 30-mo (3,922), it implies a trading range is likely to develop between the two moving averages before the next sustainable trend.
A monthly close above the 10-mo ma (4,322) hints at a retest of the 1/4/22 all-time high (4,818.62). However, convincing violations of the 30-month ma (3,922), the 40-month (3,695.5), and the middle of the 2009 uptrend channel (3,515) warn of SPX decline to 2,845 (bottom of the 2009 uptrend channel).