THIS WEEK'S REBOUND SUGGESTS SHORT-TERM STOCK BOTTOM IN PLACE -- BUT HOW FAR CAN IT RALLY?

WEEKLY S&P CHART SHOWS OVERSOLD CONDITION... Stocks are having their best week in two months which suggests that a short-term bottom may be in place.   Before looking at daily charts, however, it's worth checking a weekly chart to keep things in perspective.   The weekly bars in Chart 1 show the S&P 500  bouncing off its 38% Fibonacci retracement line (green arrow) measured from its 2020 bottom to this year's top.   That's not usual because those retracement lines often provide some support.  That's especially true if the market has reached an oversold condition -- which it has.   The upper box shows the 14-week RSI bouncing from an oversold condition near 30 (black arrow).     In addition, the weekly MACD lines in the lower box have reached potential suppport near their 2020 low. Those weekly indicators suggest that stocks have reached a level where a short-term rally would not be surprising.   The bad news, however, is that weekly moving average lines remain bearish with the blue 10-week average still trending below its red 40-week average.  In addition, stock prices remain well below both moving average lines.  All of which suggests that this week's rebound should still be viewed in a bearish context.  The big question is how far can the market rally.

UPSIDE RESISTANCE BARRIERS...The daily bars in Chart 1 show the S&P 500 exceeding its mid-May peak to turn its short-term trend higher.  In addition, its 14-day RSI line in the upper box has rallied to 50, and its daily MACD lines in the lower box have turned positive for the first time in nearly two months.  Both momentum indicators also support a short-term rally.   Stocks, however, have a lot of overhead resistance barriers to deal with.   The red horizontal lines measure Fibonacci retracement lines measured from their late March peak to their May bottom.  Those three lines should now act as overhead resistance barriers.     The SPX has already reached the lower line at 38%.  More substantial resistance is likely at the two higher lines at 50% and 62%.  Moving average lines should also act as overhead resistance.  That's especially true of the blue 50-day average which may be tested (blue circle).

Charts 3 and 4 apply those same overhead resistance lines to the Dow Industrials and the Nasdaq 100 (QQQ).  There again, stocks may reached their 50-day averages which coincide with one of the Fibonacci retracement lines.