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Mixed Technical Picture for U.S. Stocks

Tickers in this article: SPY
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Banister

NEW YORK ( TheMarketTrendForecast.com) -- The U.S. market is one of very few trying to maintain a long-term uptrend bull cycle.

Most major world indices are in decline. In addition to the U.S., only Germany and London are also trying to hang on.

Will the rest of European problems continue to spill over and weigh down our markets? Or will the U.S. stay strong and lead global markets higher amid the turmoil?

The threat of debt repudiation resonates throughout Europe and creates major headwinds for banking and other industries. It may be hard for the U.S. market to gain much traction until we find out whether any resolution is on the way in the near term.

The technical picture is mixed. The drop to 1292 from 1422 highs created a 38% Fibonacci retracement of the October lows at 1074 and the March highs of 1422.

This is typical for a fourth-wave correction after three waves of rally. In addition, we had McClellan oscillators at extreme lows coming into this past week, investor sentiment running at multimonth lows not seen since last summer and many other oversold indicators.

This led to a 36-point bounce early in the week last week from 1292 to 1328, but it had trouble holding into the end of the week.

I was looking for a strong close over 1322 to help confirm the downtrends lows were in place at 1292, but we did not get that just yet.

Near term, we have to see a very strong bounce this week to more than 1330 on a closing basis or the market will be at risk of a rising bearish wedge and then another large downleg to new lows since the 1422 highs.

Therefore, Tuesday and Wednesday should tell us which way this market is about to go.

We have a few outlooks that are valid.

One is that we had an ABC correction from 1422-1292 and we are in the early stages of a Major Wave 5 up bullish pattern. The other is that we had 3 waves down, this is a 4th wave bounce, and a 5th wave to new lows on the move is next.

Again, the early part of this week will be key.

Below are two charts. One shows the weekly S&P 500 pattern and prior pivot points where downtrends halted and reversed.

In each case, the candlestick pattern for the week was inside and above the prior week's lows and closed higher (White Candlesticks). This also happened this past week, but again, I'd like to see higher closing levels early in the week to confirm.