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Are you shocked by the market correction and a two-day crash?
If you received our Stock Market Outlook Free eBook via referrals or subscribed to Market Twists & Turns Pro, you would not be surprised; it was all mapped out there.
We have been alerting Pro subscribers since December about a market reversal in the week of February OPEX. They were ready.
It's never too late to stay in tune with market moves by subscribing to Market Twists & Turns Pro and following our objective, multi-pronged analysis - the best one that money can buy, only two coffees per week!
Even in the Free Newsletter, we have been presenting long-term technical, valuation, and sentiment warnings since the spring/summer of 2024. Many of these metrics were at 100-year extremes.
Today, we will examine some of the shorter-term technical and sentiment indicators that we discussed in the last several weeks.
CNN Fear & Greed Index (FGI)
A few weeks ago, I mentioned that I would like CNN FGI to drop deeper into Extreme Fear before a more significant bounce.
On Friday, FGI dropped to 4.24, the lowest level in the last five years, except for the FGI of 4.03 in May 2022. However, there is still potential to drop even lower.
CNN FGI is a contrarian indicator comprising several sentiment metrics. When it is in Extreme Greed or Extreme Fear, expect S&P 500 reversals to down or up, respectively.
I would like to bring to your attention a valuable technical analysis aspect of this sentiment indicator.
Notice that at significant market highs and lows, there is usually a divergence between the S&P 500 and CNN FGI – The key word is "usually," not 100% of the time; occasionally, they peak or trough simultaneously.
Currently, there is no such divergence. The odds appear to suggest that a lower low in the S&P 500 with a higher low in FGI would indicate a low of significance.
SPX, Put/Call Ratio & A/D Line
SPX appears to be in wave (iii) of C, exhibiting two consecutive runaway gaps.
The wave structure does not appear to be complete. Ideally, an (iv)-(v) sequence is needed to complete C for an intermediate-term bottom – Instead of a 5-wave structure, C can also be a zig-zag, (a)-(b)-(c), with a smaller probability.
The upper window displays CBOE options total Put/Call Ratio ($CPC). It is elevated but has not yet reached the peak levels of the last 12 months.
The bottom window displays the NYSE A/D line, which is reaching lows for the year and does not yet show signs of bottoming out.
Long story short, there is more downside potential before a more significant bounce.
Long-Term SPX Chart & Technicals
Some of you may recall this monthly SPX chart, which displays the orange and red wedges and shows a multi-year loss of momentum, as reflected by the negatively diverging RSI declining from its 2018 peak in momentum.
The red wedge was decisively broken, confirming an intermediate-term down.
An ideal intermediate-term target for this decline is 4,800, which is a confluence of several notable technical support levels: 1) 50% retracement of the move from 2022 to 2025; 2) Jan’22 peak (gray line); 3) 50W MA; 4) the lower trendline of the orange wedge, and 5) 18M cycle price target.
Indeed, a strong magnet and support.
SPX is likely to launch a bounce from that area, potentially lasting 2-4 months.
If/when the SPX breaks decisively below the lower trendline of the orange wedge, it will signal a long-term (multi-year) change of trend.
BraVoCycles on X
Consider following me on X (former Twitter) in addition to the newsletter, as I often post valuable information there in real time between the newsletters.
Evolution of the SPX chart I posted a couple of times in the last several months.
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