Monday, October 21, 2013

SPX Daily Chart Upper Band Violation Overbot Rising Wedge Negative Divergence

The news-driven rally is nearly 100 handles in 8 days so the SPX is moving higher at a rate of about 12 points per day. Traders are happy that the politicians reached an agreement, even though it only delayed further drama to a few weeks ahead, as well as Fed members pumping the continued QE talk. Since the shutdown delayed economic numbers, the Fed is saying the QE tapering will likely be delayed and there is now no expectation for an announcement next Wednesday, 10/30/13 at the conclusion of the two-day FOMC meeting. GOOG earnings surprised to the upside carrying the Nasdaq and tech higher so it is all going the bulls way, for now.

As highlighted on the weekend, the put/call ratio's indicate a significant market top now forming or in place, say, within the coming days. The SPX weekly chart and daily chart above have strong upside momo due to the strong and quick rally over the last two weeks, so prices may stay elevated this week to burn off the bullish energy. Friday's candlestick is completely above the upper standard deviation band; this does not occur often. It is further testimony to the uber euphoric bullishness in the market right now. Even those that wax worry in the media are fully exposed on the long side. There are no bears remaining.

The chart clearly shows negative divergence across all indicators in the one-month and multi-month time frames. The bulls, however, are pumping prices with the near-term momo as shown by the long and strong profile of the short green lines. This behavior indicates a jog move on tap, down-up-down, to allow time for the indicators to negatively diverge in the few-day time frame. The overbot stochastics should create the initial drop today or tomorrow. Once the upper band is violated, price needs to retreat to the middle band, which is also the 20 MA, at a minimum, currently at 1696 and rising. Reference the SPX S/R message a few posts back to note the importance of the 1690's. Bulls are happy staying above 1700. Bears will rule the markets sub 1691. Typically, price will also move to the opposite band which is currently at 1654 and dropping.

Volume picked up a touch last week but that is not saying much since price is at higher levels than the September top and showing less interest by long players. Up volume is no where near the selling volume that accelerated the down move off the top last month. The short green lines will need to negatively diverge to mark the exact top and roll over. Projection is sideways to sideways lower moving forward with the 1690's targeted as an initial downside target and considering other market parameters, equities should move far lower as the weeks and months play out. It is prudent to trim back any long positions over the coming days. Any long player that has enjoyed the upside all year long would be wise to simply liquidate the account taking the profits and go to cash for a month or two. The market top that should occur in the coming days, say zero to 10 days forward, may create the high prints for equities that will not be seen for months or years forward. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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