I still feel that stocks are vulnerable to another failure below their May 2015 highs. I also believe that if the S&P 500's decline resumes, it's likely to last much longer in both time and price than what we've seen so far in other pullbacks since the market's peak last May.
I've been watching a couple of things very carefully recently. The first is a key weekly support decision that's now been violated. That paves the way for a continued decline -- eventually -- from below the May highs. It doesn't guarantee this will occur, but it was a break of rather important support, so I'm staying open to that possibility.
The second thing I've been watching is the cluster of Fibonacci timing cycles due Jan. 18-22 that were suggesting, at the minimum, a tradable bounce. We did see a very clear reversal of the decline into these cycles on Jan. 20, as this S&P 500 daily chart shows:
Since a low was made into this time window and was followed by some very clear buy signals, I now consider this to be a pivotal low for the S&P 500.
I know these timing cycles provide an important decision point in the market, but what I don't know is how much of a rally we'll see off of this decision. So I suggest stops should be trailed up on any long positions. After all, we've already seen the S&P 500 stage a 96-point rally from this low. I also plan to start running a Fibonacci price-and-time analysis to see where we should watch for the current rally to terminate.
The charts below illustrate a couple of areas that I'm focused on for possible resistance to the current rally. The daily S&P 500 chart shows that we're currently at the top of the 1,911.55-1,915.15 area for the S&P 500: