S&P Correction

This morning the S&P futures have posted a quite dramatic turnaround from their overnight lows. Currently they stand at 1026 having been as low as 1003 overnight. On the daily chart this is potentially signalling a bigger bounce. If we can close around here or higher, then the futures will have completed a western 'Key Day Reversal'. This would also create a potential short-term double bottom with, the first part of which is a Doji Candlestick. Additionally this all occurs in the wake of Bullish momentum divergence. I do not think this is likely to change the bigger picture bearishness, however the futures have sold dramatically lower in the past 2 weeks by almost 130 points almost without a break, and a pause/correction is probably overdue.

Looking at the bigger picture, a correction would fit perfectly within the overall bearish outlook. I have posted two sets of charts below showing the larger bearish potential. The first is a set of comparison charts. The upper chart is the Weekly S&P Continuation Futures 2001 - 2008, the lower chart is the Daily S&P Continuation Futures Sep 2008 - July 2010. If u click to enlarge these charts, you should be able to see a very strong similarity between the 2 charts. (Note: this is different to the Fractal charts I posted in recent weeks). The current phase we are in, i.e. divergence at a new correction low, keeps the strong synchronisation of this comparison intact. If this comparison continues to unfold in a similar manor, this suggests the risk of a pullback towards 1060/65, though a break over the old support at 1040 may be a struggle. Followed by a a deep and strong bearish move with potential much lower.


The next set of charts show a Fractal pattern, which has occurred pre-the 1987 crash, and pre- the fall 2008 crash (and is therefore part of the above weekly chart). The current pattern over the past 2/3 months has unfolded in a very similar manor. A short correction from the current levels would be totally in keeping with this fractal pattern. - ( Obviously this does not mean a crash is coming, however it does highlight a favourable set-up is forming. )