The SPX recent price action has generated a new bullish count on the medium-term 1-box reversal P&F chart. We have already had the potential bullish target at 1590 calculated from the November-December interim fulcrum bottom and waited for a decisive breakout from the February sideways pattern. If the price had fallen to the 1480 critical level, it would have produced a new bearish count and cast doubt on a possibility of reaching 1590 in the nearest future. The SPX has broken to the upside instead and generated a new bullish count from the February congestion pattern pointing to 1590 as well. Two different bullish counts pointing to the same target make the 1590 level more significant.
I have to repeat here that we should take potential targets as reference points and not consider them to be set in stone. At some point one of the price targets will not be achieved. The mere fact of reaching or not reaching a potential target gives us the important information about a shift in supply and demand.
In the SPX case, the medium-term picture remains bullish but will be re-assessed if the price falls to 1510 again.
One thing that makes me think that the current upside potential is limited is the relative weakness in the market breadth comparing with the past week move size. The SPX added more than 2%, at the same time the Sector Breadth Model (SBM) registered the modest 2% increase in stocks on a new buy signal only in the Financial and Technology sectors.
Compare this with less than 1% move in the SPX on Jan 14-18 and the broad participation of different market sectors implying the continuation of the rally.
The past week sector breadth picture is very similar to the last year sector breadth picture on Mar 12-16 (blue arrow) when the sizeable move in the SPX was not confirmed by any sector in SBM and 2% increase was registered in the Financial and Discretionary sectors the following week. Two weeks later the peak was reached and the SPX started its decline.
There is no guarantee that this pattern will be repeated, but it’s something to keep in mind as this negative divergence in sector breadth can be a sign of the SPX forthcoming correction.
Disclaimer: I express only my personal opinion on the market and do not provide any trading or financial advice (see Disclaimer on my site).