S&P 500 Still in a Bullish Pattern Despite Few Day Sell-Off

The price action is still bullish based on the breakout from a recent range (blue box). The top area of that range, around 2945, could now act as support. The price is also working its way toward the top of the trend channel with a target of 3100 for mid- to late-October.

Also bullish are the 3 major upside days that occurred during that range (based on upside volume and number of stocks advancing). Historically, after this has occurred the S&P 500 has moved higher by 13% over the next year.

The NYSE advance-decline line has also pushed to new highs ahead of the S&P 500. This shows that a wider stock base than the S&P 500 is moving higher. On almost every occasion when this has occurred (positive divergence) the S&P 500 has followed and made new highs. 

A drop below 2822 indicates the market has entered a more ranging or bearish period.

To really help confirm any rally that may develop, it would be nice to see the small caps participate more. Look at the IWM/SPY ratio char.t It started to move higher earlier this month, then pulled back. A renewed push higher would indicate a more speculative tone in the market, which is bullish overall.