Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
How A NASA Scientist Could Trigger The Next Cannabis Boom - 17th Dec 18
iShares Russell 2000 IWM Leading Stock Market Decline - 17th Dec 18
Where is the Dow Stock Market Santa Rally? - 17th Dec 18
With Weaker Climate Consensus, Expect Elevated Climate Change - 16th Dec 18
SMIGGLE Advent Calendar 2018 UK Contents - What You Get Look Inside Review - 16th Dec 18
Is there a Lump of Coal in Santa's Stock Market Bag? - 16th Dec 18
This Market Will Drive Gold in 2019… - 16th Dec 18
Gerald Celente:Central Banks Can’t Stop a 2019 Debt Disaster - 16th Dec 18
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Stock Market Counter-trend Rally Reaches .618 Retracement

Stock-Markets / Stock Markets 2018 Nov 13, 2018 - 10:41 AM GMT

By: Andre_Gratian


Current Position of the Market

SPX: Long-term trend – Bear market 

Intermediate trend –  Bear market rally

Analysis of the short-term trend is done on a daily basis with the help of hourly charts.  It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends

Daily market analysis of the short term trend is reserved for subscribers.  If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at

 Counter-trend Rally Reaches .618 Retracement 

Market Overview 

The rally from 2604 is deemed to be a countertrend rally, or a secondary reaction to the primary trend which is now down.  As of a week ago Friday, the countertrend had rallied to 2750 and was in the process of pulling back before moving higher.  The pull-back was curtailed by the elections, only retracing .382 to 2700, and SPX then surged to our next target of 2815 for a .618 retracement of the entire downtrend from 2841 to 2604.  2815 was reached on Wednesday and SPX has been pulling back, since. 

While the B-wave of the primary trend was expected to retrace to ~2813-2838, it is unlikely that we are already  on our way to a new low.  The P&F accumulation which took place at the 2600 level had suggested a possible reach to about 2840.  So, Instead of topping right away, we have probably started a distribution process which could take the index a little higher before the larger trend regains control.  The action of IWM, which did a good job of predicting the 2941 top, may again give us a hint about the end of the secondary trend.  It is lagging SPX in the recovery, but it also seems to have a little more to go on the upside.

So far, there is no reason to expect the uptrend from 2604 to be anything other than a bear market rally which is usually fast and furious.  Of course, we’ll be alert for other possibilities to unfold.

Chart Analysis  (The charts that are shown below are courtesy of QCharts)

SPX daily chart 

The market structure still suggests that the rally from 2604 is a bear market rally with Wave A making its low at 2604, and wave B currently underway.  Since these rallies usually unfold in a 3-wave sequence, this is what is expected, and is the way it has been labeled on the chart.  The a-wave found resistance at  2756, just below the major (blue) trend line from 1810, as well as with the 200-dma.  Wave b was completed at 2700, just above the June low (green horizontal line), and wave c is currently underway.  While it  has reached the normal .618 retracement of the initial downtrend, there are reasons to believe that it will first pull back, and then make its final high either by re-testing the 2815 level or moving a little beyond to about 2840. 

The oscillators turned down after the price reached 2815, but are only suggesting a consolidation at this time.  Should all three continue lower and become negative again (the A/Ds indicator already has) it would be a sign that we could be on the way to re-test at least the 2700 level one more time; so what happens over the next week or so should clarify the market position.

Structurally, the finishing touch of the large B wave should require another move higher toward 2830-40 to complete what appears to be a zig-zag formation from the 2604 low. 

SPX hourly chart 

The rally from 2604 stopped just a tad above the .618 retracement of the initial downtrend.  Since there is a P&F count potential to 2840, it’s possible that we end up retracing .707 of that distance, which would not be
uncommon.  After reaching .618, the index started a correction which was predicted by the negative divergence in the momentum oscillators and which does not look quite finished since we are still in the red zone, with the price remaining within a small down-trending channel.  It is possible that the current pull-back will close the open gap, and find support on the red dashed line just below and, from there, start the move which could complete the larger B wave.  However this plays out, SPX will remain in a short-term uptrend until it comes out of the price channel represented by the two dashed lines. 

If, after completing its move to about 2840, the index does not immediately start to decline below 2700, it would mean that additional distribution is needed in this area in order to build a larger count before resuming the primary trend, perhaps in the form of a double zig-zag.  A third option would be for the index, after additional consolidation, to begin a move that would surpass 2840.   This would alert us to the possibility that we still have not made the bull market high after all, and that the original 3000+ projection is still viable.   

DJIA, SPX, NDX, IWM (daily)

The DJIA remains unquestionably the strongest index and IWM the weakest.  A quick way to assess this is by looking at Friday’s close  relative to the red 200-dma and blue 50-dma.  While all four indexes broke below the 200-dma, DJIA is the only one which rebounded above both moving averages, while IWM has not even come close to its 200-dma.  Until IWM starts to improve its relative performance to the other indexes, we can assume that the correction is not over. 

The P&F chart suggests that IWM (154) could drop down to 125-130 before its correction is over.  This is interesting, because IWM is correcting a 79-pt rally from 94 on 1/16.  A .618 retracement of that rally would take it back down to 125, the same level suggested by the P&F count.  If all indexes retrace .618 of their move from January 2016, this would give SPX (2781) a correction low of 2240, DJIA (25,989) a low of 19,950, and NDX (7039) one of  5384.  (Something to keep in mind while considering other options.)

UUP (dollar ETF) daily

UUP has pushed to a new high but is coming close to some resistance at about 26.00.  The indicators are also beginning to show some negative divergence.  That suggests that it is approaching a reversal point and subsequent downtrend, which could challenge at least the short, minor trend line immediately and, a little later on, the longer trend line from the March-April low.   

GDX (Gold miners ETF) daily

The recent strength in UUP has set GDX back (at least temporarily), and until it shows a better action in its oscillators it could drop a little lower; especially if UUP continues to move higher.  However, with UUP’s upside apparently limited, and good support still present just above 18.00, further weakness in this index may be limited. 

USO (United States Oil Fund) daily

USO is approaching a 50% retracement of its recent uptrend, and this may be good enough for at least a temporary hold, and perhaps a place from which it can resume its longer term uptrend.  Positive divergence has begun to appear in the CCI and this is a bullish sign.


Last week, SPX surged before and after the elections, reaching 2815, a .618 retracement of its original decline from 1941 to 1604.  This could be good enough to have completed the B wave rally.  But since there are still potential counts to about 2840, we should wait and see what it does over the next week or so. 


For a FREE 4-week trial, send an email to, or go to and click on "subscribe". There, you will also find subscription options, payment plans, weekly newsletters, and general information. By clicking on "Free Newsletter" you can get a preview of the latest newsletter which is normally posted on Sunday afternoon (unless it happens to be a 3-day weekend, in which case it could be posted on Monday).

Disclaimer - The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles uncompromised by fundamental considerations. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.

Andre Gratian Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in