As always, we NEVER rely on merely "derived" technical levels like trend lines, various "bands", the ever-useless moving averages or even the vaunted Fibonacci relationships we cite often in our analysis for support or resistance without an accompanying momentum failure needed to stem the trend at hand. Further below we'll explain the potential importance of the 2084-to-2082-area resulting from a pair of Fibonacci progression and retracement levels. But before doing so we want to start with a more detailed view of the past week's clear resumption of a developing downtrend that's the latest component of a broader sell-off attempt from 23-Aug's 2192 high.
As discussed in Tue'' Technical Blog, the market's break below key support ranging from 28-Oct's 2112 low to 12-Sep's pivotal 2100 low not only gives the bear the opportunity to perform, it leaves this now-former support range of 2100-to-2112 as a key new resistance cap that would be expect to contain recovery attempts per any broader bearish count. The 240-min chart below shows that this latest spate of weakness has left corrective highs in its wake at 2107, 2130 and 2150. These highs serve as our new micro-, short- and long-term parameters from which the risk of any non-bullish decisions like long-covers and cautious bearish punts can now be objectively rebased and managed.
The market's failure to sustain losses below yesterday's 2107 micro corrective high will confirm a bullish divergence in momentum and provide the very first, albeit minor evidence that would nip away at a bearish count. Further "non-weakness" above Tue's 2130 corrective high will threaten the bear even more while a recovery above 25-Oct's larger-degree corrective high and key risk parameter at 2150 will render Aug-Nov's entire sell-off attempt a 3-wave and thus corrective affair consistent with a count calling for a resumption of the secular bull market. In lieu of such proof of strength, the trend is down and most practical scales and should not surprise by its continuance or acceleration.
OK, now for the "derived" technical level stuff. Notable in the daily log scale chart above and weekly log chart below is the tight neighborhood defined by the 2084-to-2082-area. 2084 is the 50% retrace of Jun-Aug's 1981 - 2192 rally while 2082 is the 1.000 progression of Aug-Sep's initial 2192 - 2100 break from 22-Sep's 2173 reactive high. If there's some derived level reason to be leery of an end to the 3-month slide and resumption of the secular advance, it is here and now.
Despite these impressive Fibonacci facts, such derived levels are not to be relied upon without an accompanying bullish divergence in momentum on "some" scale, even a micro one like strength above 2107. Following such a 2107+ pop the market will have then left a specific, battle-tested low (overnight's 2084 low currently) from which any non-bearish decisions like short-covers and cautious bullish punts can only then be objectively based and managed. Identifying such a specific and objective risk parameter is one of the defining merits of technical analysis.
From an even longer-term perspective shown in the monthly log scale chart below, the market has provided nowhere near the weakness needed to threaten the secular advance. A failure below AT LEAST Jun's 1981 corrective low and preferably Feb's 1802 major corrective low is required to threaten or negate this massive bull. This long-term bullish backdrop also brings the point home about relatively minor proof of strength above levels like 2107 and 2130 leading to the eventual resumption of the secular bull to new all-time highs above 2192. The risk/reward merits of cautious bullish exposure following a bullish divergence in short-term and basing behavior anywhere south of the 2130-area would indeed be compelling, and we believe such an opportunity now hinges around levels like 2107 and 2130.
In sum, a neutral-to-cautiously-bearish policy and exposure from the 2100-to-2112-area remain advised with strength above 2107 and/or 2130 required to pare and/or neutralize this exposure depending on one's personal risk profile. In lieu of such strength further and possibly steep losses have been exposed. If, alternatively, the market can show some "non-weakness" above 2107 and eventually 2130, then we could be looking at an outstanding risk/reward opportunity for bulls for the remainder of 2016 and possibly well into 2017. And maybe, just maybe, the WORLD SERIES CHAMPION CHICAGO CUBS might behind it all.
FYI...after a very solid performance in 1908, the DJIA finished another 14.9% higher in 1909 after the Cubs last won the World Series. A similar performance would put the S&P somewhere around 2,400 by the end of 2017 from current 2095-area prices.