Summary
- Bad close above Stage 2 channel resistance. This is where it has historically reversed.
- 30-week MA is below the 40-week. Sign of mid-term weakness that supports the reversal.
- The handle didn’t materialize. A cup without a handle is less likely to success.
- 150-day MA is below the 200. Sign of weakness.
- Overextended price action looks like it’s leading to weakness that will retrace back to Stage 2 channel support. If the historical range is kept, it could be around a 40% – 50% pullback. A pullback here could be the beginning of a new base structure.
Stage Analysis
Last week was a bad close over the Stage 2 uptrend support. That has typically led to a retrace to channel support. Also, the 30-week MA is below the 40-week. That suggest mid-term weakness that would give more credibility to that weakness. If the Stage 2 channel support were retested, it would suggest a 40% – 50% retrace, in which case suggests a new base could form from here.
Technicals
The handle I was watching for in mid-December never materialized. Instead, it powered higher which didn’t give the gains from the right side of the cup time to consolidate. This is another sign of over extendedness and lessens the chances of the formation’s success. As a further sign of mid-term weakness, the 150-day MA is below the 200. The RS withing the Real Estate sector is still very strong, but that sector is weak against the SPX. Therefore, I think Stage 2 is still in play, but a new base may be starting. I’ll take this off the primary watch since I want to watch things in late bases.
