Last week's market action was pretty much as expected as my overall outlook was a downward continuation for the SPX with a target in the 2300-30 area and the close was 2328 Thurs. Sentiment continues to mirror the behavior of the 2015 tops in July-Aug and Nov-Dec. Overall and Short term sentiment has now moved into the BUY area, indicating that a short term, but sharp, short covering rally is likely to shake out the bears before the real decline begins. The TRIN as an inverse indicator of advancing volume support has now spiked to the level of Dec 2015.
The overall Indicator Scoreboard has now reached a BUY level equal to the mid-Dec decline before the last short covering rally that dropped sentiment back to the -8.0 area.
The Short Term Indicator (VXX $ volume and Smart Beta P/C) has also reached the BUY level with the 2.5 EMA, but is likely to spike higher to reach the Dec 2015 level early next week. With earnings releases next week providing a possible excuse for a rally, a late Monday/early Tuesday plunge to the low SPX 2300s may be the setup for a "turnaround Tuesday" seen often in options expiration week. For both July and Dec 2015 the market then rallied until a SELL was reached before a larger decline.
For those questioning whether this may be the elusive "fifth wave" that EWers are looking for, the TRIN (net advances/net volume, rising as volume declines) has now spiked to a slightly higher level than seen in Dec 2015, indicating that the bull phase is likely over..
Bonds (TNX) continue to see rising bearish sentiment even as rates fall as predicted in last week's post and point to more of the same, although a pause is likely if the SPX rallies.
Gold stocks (HUI) continued their inverse relationship with interest rates, ie, falling rates lead to higher gold and gold stock prices, but falling bearish sentiment indicates a trading range is likely with a decline to recent lows when a SELL is reached.
Conclusion. A short covering rally is expected to start next week that may last to the EOM/early May. If the SPX follows the same scenario as July and Dec of 2015 a rally is likely to a slightly higher level than the last one at 2378, but lower than the previous highs at 2390 and 2400. May and June may see a decline to the SPX 2200 level.
Weekly Trade Alert. Mon-Tue should see a tradeable bottom. Looking for SPX 2310 as a LONG with a target of 2380+. Cover at 2295. Updates if necessary at @mrktsignals.