Top 10 Technical reasons to think a low is right around the corner

SPX’s technical trend and momentum remain bearish but are nearing areas in price and time this week, which might produce a short-term low, allowing for the start of a sharp bounce into February.  Given the orderly selling that has occurred this month vs. the abrupt, unexpected decline in mid-December, it might be unlikely that capitulation measures happen right away before Equities bottom. Given the return to Stock/bond positive correlation, some evidence of yields peaking will likely be important to trust any bounce in the Equity market. Stocks like AAPL and NVDA look to have arrived near important levels, and given the worsening in sentiment in recent weeks, a reversal to this recent downdraft looks quite likely this week at a time when many investors least expect it.  However, the extent of the breadth deterioration has proven severe in recent weeks and a bounce in Equal-weighted SPX might be necessary before having too much confidence that a sustainable low is firmly in place.

The following 10 technical catalysts are coming together to make a strong case for a low to this recent selloff:

  1. SPX is approaching last November’s lows and Fibonacci-based price support.
  2. SPX is approaching intermediate-term uptrend line support from the October 2023 low.
  3. Both NVDA and AAPL are now within 1-2 days of bottoming out, technically, as both near meaningful levels of support.
  4. Sentiment is turning bearish; Fear has begun to creep back into markets.
  5. DeMark-based exhaustion could be in place for SPY into Wednesday’s CPI report (TD Buy Setups).
  6. Elliott-wave Structure is also getting close to bottoming, given the shape and pattern of this decline since mid-December.
  7. The Technology, Financials, Industrials, Discretionary, and Communication Services sectors are all nearing intermediate-term trendline support on weekly charts.
  8. Market breadth gauges have reached abnormally low levels (SPX Percentage of stocks above their 50-day moving average (m.a.) = 16%, the lowest since October 2023) while Percentage of SPX issues above their 10-day m.a. which has begun to show positive divergence compared to Mid-Dec. 2024. 
  9. Short-term Cycle composites (Based on emphasizing the 80-day cycle) show a bottoming in SPX potentially as early as this week, followed by a sharp bounce into mid-February.
  10. Treasury yield charts across the curve (2, 5, 10, and 30-year Yields) all look close to signaling exhaustion on this rally in yields which could mark a peak in yields between 1/15-1/21 before pullbacks over the next 3-5 weeks.  Given the positive correlation between Treasuries and Equities lately, any hint of yields starting to peak out could likely be a positive catalyst for an Equity rally.

S&P 500 Index

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