Here is the current chart for S&P 500:
AS we often say, history may not repeat but will rhyme. The recent action looks eerily similar to what happened last August. Back then, SPX declined about 5% or so with the technical indicators dipped near oversold territory. But, there was no positive divergence on any of the indicators. Then an oversold rally ensued with the index kissing the resistance line from below, i.e. the S&P rallied up toward its 50-day MA. But this was a bearish movement, just relieving the oversoldness and allowing the indicators back to their neutral position. As you can see what happened thereafter: a more powerful and severe downtrend started, shedding another 10% off within weeks!
With Friday's oversold rebound, SPX did kiss the 50 DMA. Actually it went a bit over above the level during the day. Nevertheless, the index closed right a hair below the line. Although I cannot say for sure that it will be heading back right away next week, it seems the chance is very high that the index will follow the path we walked through in Aug-Oct last year. If so, looking for another 10% or so plunge in the weeks ahead!
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