More Interim Rally Ahead?

SPX: Intermediate trend–  Correction
Analysis of the short-term trend is done on a daily basis with the help of hourly charts.  It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends.

Cycles
The half-span of the 66-wk cycle made its low on the 18^th, followed by the bottoming of a smaller cycle a couple of days later.
A 28-30 day cycle is due either Friday or Monday, along with a Kress cycle of undetermined length.
This group of cycles should initiate a two-week rally into the middle of next month.  This will have to be confirmed by market action in the first week of June.
Breadth
Below, I show the NYSE McClellan oscillator (NYMO) as well as the NYSE Summation Index (NYSI), both courtesy of StockCharts.com.
Let’s first look at the lower one (NYSI).  The decline which started in February only paused briefly  before continuing to make new lows in spite of the deeply oversold state of its RSI.  As a result of  the current near-term consolidation, the decline in the index has decelerated but not reversed, while the RSI, which is at its most deeply oversold level in three years, is showing the positive divergence which normally precedes a rally in the index as well as in the market.  This is another reason to expect a rally as soon as the next two cycles have bottomed (or sooner).  However, if history repeats itself, some positive divergence will have to show in the NYSI itself vs. the SPX before we can call an end to the price decline.  This cannot  take place unless we first have a price rally followed by a decline to a lower level.  (This kind of bottomformation occurred at last year’s September-October lows.)
The NYMO continues to trade predominantly in its negative zone.  However, if the cycles perform as expected, in a few days (if not before) it will have the opportunity to become positive and remain so for about two weeks.

Sentiment Indicators
The SentimenTrader’s (courtesy of same) long-term index showed its highest reading of extreme pessimism (bullish) when the SPX was nearing its recent low.  Since then, as the market began to consolidate, it has dropped slightly but continues to maintain a fairly high rate of pessimism.  It may continue to drop as the market rallies, but should rise again as the decline continues, and once again be near the top of its range when the SPX makes is final correction low

The VIX
The VIX is mimicking the SPX in reverse.  At the daily level, there is no bullish indication coming from VIX, but there is some minor one at the hourly.  If it persists as the cycles make their lows over the next few days, it will signal the market is about to rally.  We should watch for it.

BONDS
TLT has done well in this downtrend.  It came very close to making a new high, and could exceed 125 before the correction in equity markets is over.  On the P&F chart, there is a potential count to 129.

GLD (ETF for gold)
In spite of holding at its previous 25-wk cycle low, GLD (below) still looks precarious and quite capable of reaching the 141 target which was derived from its near-term count.  This is a confirmation of the same count which was taken at the 175 level after GLD reversed its long-term trend.  When GLD has reached 141, we will re-assess its long-term position.
The current weakness is primarily driven by the next 25-wk cycle which is due to make its low in mid-June.
That seems to go against the scenario proposed for the SPX which intimates that that time frame should be a high for the equity indices.  We’ll have to see how this seeming discrepancy resolves itself.

USO (above)is just starting to consolidate after reaching a near-term target of 34.  That puts it at the bottom of a channel and on top of good support.  But this is a conservative target and it may only bring about a brief interruption to the decline.  Based on the P&F formation, it is possible for the price to move even lower (30.50?).
The weekly CCI is at an extreme and the daily one is showing some positive divergence -- more indications that USO is likely to consolidate at this level.
USO is relatively weaker than the SPX on a short and on a long-term basis. 

Summary
Since meeting its conservative downside target of about 1304, SPX has been consolidating.  As a result of the current cyclical configuration, it is likely that this consolidation will expand upward over the next two weeks with a move to 1340 or higher. 

This should only be a continuation of the interim rally which started at 1297 and not the beginning of a new uptrend.  Another down leg is expected before the correction which started at 1422 is over. 

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The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.