The cash S&P500 had a rip roaring rally yesterday as price hit the system stop loss (Parabolic SAR on the weekly chart) at 1359.68.No matter how strong yesterday was, the monthly chart has a warning: The bear market can not be assumed complete. Today’s chart shows that the latest price bar was downtrending on the monthly chart. Of more interest is the Derivative Oscillator. This indicator has now fallen to its lowest level since the early 1980’s. It is telling us that after the bearishness gets worked off the market will once again be testing the 1255 area. Of course, keep in mind that this does not speak to the timing of the retest at all.
Note that the rally off of the 2002 low was contained within one standard deviation of the regression line from the '02 low to '07 high. The recent sell-off has gone not only to the 1 standard deviation level for the first time but to the 1.5 deviation level as well. This indicates that a major change in trend occurred in 2007.
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