Sunday, December 15, 2013

SPX Monthly Chart Upper Band Violation Negative Divergence

The central bankers are relentless in pushing the stock market higher. The monthly chart is running out of gas but the recent Yellen rally, daily Fed member cheer leading and BOJ weakening the yen has created another spurt higher in November. In relation to the October 2007 high, the indicators are all negatively diverged except for the MACD line. Over the last 3 months, the RSI, money flow and MACD line have also sneaked out a tiny higher high. The bears have waited several months for the market top to be placed and may have to wait for a jog move before the complete roll over occurs. Of interest if the 2007 fractal (neon box). Note how price peaked in the summer of 2007, tagging the upper standard deviation band, with negative divergence on the histogram, stochastics and money flow creating the spank down. The RSI and MACD line did want one more push for price higher, that occurred, that then created the final October 2007 top with universal negative divergence. The jog move back then needed 4 to 5 months to play out and note how price collapsed to the 20-week MA as part of the drama. If the same fractal behavior plays out moving forward, the SPX will continue lower now, into January or February, to the 1550-1620 area (150 handles lower), and then rebound all the way up to the current highs again in say, April or May, then the complete roll over for the next few years would begin. The market action from now into the spring time may be epic.

In fairness, looking at the 2007 fractal closely, that was an intramonth dip to the 20-week MA support so the final 70 handles was an event that only lasts a few days or week or two. The low close for that fractal was a move of about 100 handles off the top so that would be a move to 1675-1700 for today's comparison. We will leave it there to not get too far into the weeds; the above discussion is interesting nonetheless. Projection is for sideways to sideways lower markets moving forward. If the bears finally receive some downside mojo, a bottom may occur in the sub 1700 area followed by another thrust higher to satisfy that pesky RSI and MACD line, where markets would then roll over for an even more substantive down move that is extended for many months ahead, likely all the way through the back half of 2014. The secular bear market remains in play for 2000-2018 (the 18-year stock cycle is the most reliable cycle). The near 5-year rally is very long by historic standards in the top 4 or 5, again just like when the 2007 top was occurring, so equities are long overdue for a more substantive downside correction. The anticipation is that the 1800-1835 area would hold as the market top for years forward, be it in place already, or, a final flame out early in 2014. 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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