Monthly time frame:
- For quite a long time I have been discussing that breadth and momentum indicators are suggesting that the aged rally from the March 2009 is vulnerable.
- I have also mentioned that once/if SP500 breaches the 10 month moving average (2064.61) and the rising trend line from the October 2011 low, with an end of month print, it would increase the odds of a likely multi month/year correction (Potential new bearish cycle).
- During the rally from the 2009 low the 10 mma has been breached twice: From the March 2010 top it resulted in a 17.12% decline which lasted two months and from the August 2011 top it opened the door to a 5 months correction and a 21.58% decline.
- The March 2000 top resulted in a 2 years and 7 months correction with a decline of 50.51 % (From the March 2000 peak to October 2002 low) while from the October 2007 top the correction lasted 1 year and 5 months (SP 500 bottomed the March 2009 low) declining 48%. In both incidents once the 10 mma was lost it was never reclaimed until the bearish cycle ended.
- If the two reversal requirements are fulfilled, obviously no one knows the extent of a potential correction, but we can make two assumptions:
- The October 2014 holds (Maximum correction = 14.59%)
- The October 2014 is breached, then probably SP500 could retest the major breakout area of the March 2000 – October 2007 highs, which coincides with the 0.382 retracement of the rally from the 2009 low (Correction = 26%)