The SP500 January Overshoot Wiped out in 6 Trading Days

In accordance with my previous posts from November and December 2017 (here and here), the SP500 index overshoot finally reached its logical end two weeks ago.

Weekly chart of SP500 index undoing the overshoot above blue trendline

Interestingly, merely testing the blue trendline was not enough. With the 2017 close precisely at the trendline, in Januuary this year Spoos went for the overshoot reaching the trendline’s uppermost parallel and gaining another 200 pts.

Also worth noting is that (for the time being) the index has found support at the outer red trendline (the 8 year long rally true resistance level) and the absolute index level of 2597.70. However, this is to show as a temporary support and more of a confirmation of further downside action. The absolute level is not a coincidence either. On Jan 26 the seasonally adjusted Q4 2017 GDP was reported at $19,738.89 BN. When this number is multiplied by 131.62% and divided by 10 the result is $2597.70 (the logic behind this calculation was described on several occasions in my previous posts e.g. here).

The question is what comes next. I strongly believe that this is the first sign of a correction that will span over at least a couple of years with SP500 index eventually falling below 2000 level and maybe even below 1900 prior to departing on its last rally to (well?) above 3000 at which point we may expect the great crash scheduled for not earlier than mid 2020’s. However, a scenario in which the index makes another ATH before the present correction resumes its downward momentum is a valid possibility.

An SP500 correction scenario

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Author: damir

damir at yellowblackflag dot com