The SPX has reached our first target at 1772 and with being oversold intraday I can see a short-term bounce. However, I haven’t seen any spikes in our fear indicators and after the fresh sell signals in our trend work in the SPX and other key sectors (SOX, Russell-2000 or Nasdaq Composite) these indicators are still at too high readings. So after a short bounce I have to take into account further near-term weakness towards our worst case target at 1730, and a rising ADX indicator underpins the increasing trend momentum in the market. From a cyclical perspective I see the US market heading into an important trading low in the next 10 trading sessions, so we see further nearterm weakness as an opportunity to buy and position for another bounce/rally into Q2. Generally, our potential deeper Q1 bottom will play a very important role this year since a break of this low would imply that a more important medium-term top and eventually a bull market top is in place!! As long as this is not the case the underlying bullish character of the US market remains intact.
The fear is increasing and this implies that we shouldn’t be too far from a trading bottom but it is very likely that with the Friday/Monday sell-off we haven’t seen the low, which implies that risk of seeing at least one more significant sell-off day or after a shortterm
bounce a final move down, which could bring us divergences in our short-term fear indicators next week.
Currently, gold is testing its key breakout level at $1267 and with a very low ADX indicator we see gold trading in a classic breakout situation (similar to the SPX last week). A break of $1267 would be bullish and indicate a rally towards $1330 and $1420 whereas taking out $1232 (stop loss for aggressive long positions) would imply a failed breakout attempt, suggesting a re-test of the December low.