Wednesday, February 5, 2014

SPX Daily Chart H&S Lower Band Violation

The SPX daily chart is sick. We watched the top form and spank down occur due to the overbot conditions and negative divergence. The indicators remain weak and bleak sloping negatively. The slight positive divergence on the stochastics cause the dead-cat bounce yesterday but surprisingly weaken to print a lower low. This is some sick price action. The RSI and money flow are not yet ovesold. Interestingly, markets can crash from ovesold levels. Most folks think that crash collapses occur only from the top side with neggie d, however, in weak markets, the indicators can print in oversold territory and right when many are looking for a bottom the bottom falls out.

The case for a bounce is made since price keeps stabbing the lower standard deviation line. Price will need to move back to the middle band, the 20-day MA at 1814 and dropping, at a minimum, moving forward. The 150-day MA at 1737 is holding as support. The blue lines show an H&S pattern in play with head at 1850 and neck line at 1772 which targets 1694, now in play since the neck line failed. Price will also need to back kiss the 20-day MA and 50-day MA at 1811, and dropping, moving forward.

Note the series of textbook distribution days for the volume candles. An up day occurs which causes Joe Sixpack to become excited. He runs in to buy the following day and the funds happily distribute stock to the sucka. That is why the selling volume is always higher on the following day. Rinse and repeat with 8 distribution periods occurring since the end of 2013. The so-called smart money is distributing stock to the bagholders. This behavior hints that a longer term market top may be in place or developing over the coming weeks. Note that the strong selling volume was greater than the buying volume as compared to the third week in December when price was higher (small blue circles) This hints that the bears are starting to bite harder in the markets moving forward.

The weak and bleak indicators want lower lows in price after any bounce would occur. The upside resistance is the neck line, strong horizontal resistance and the 100-day MA at 1770-1772. A break of the 150-day MA would send price to the 200-day MA at 1708 and rising. The Dow continues to fight at its 200-day MA having lost this critical moving average for two days running. Price bounced off the strong 1744-1745 support. Below here, watch support at 1736, 1733 gap,1722-1726, then 1706-1708, then 1700 and lower (1694-1700 H&S downside target).

The path ahead will depend on any affects from the Puerto Rico debt downgrade and the ECB tomorrow morning. Draghi may cut rates or hint at a new LTRO stimulus plan (ECB's version of QE) which would bounce markets like the blue line in the right margin. If Draghi holds firm and avoids any drama, price should continue lower following the purple line and bounce from one of the support levels mentioned above. Overall, for the days and weeks ahead, sideways to sideways lower prices are expected. Thus, it is easier to forecast lower prices say for 1 to 3 weeks ahead, rather than forecast the day-to-day roller coaster ride. 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.

Note Added 10:34 AM:  The SPX drops to test the 150-day MA at 1737.81 printing a LOD so far at 1737.92 and bounces on the first try.

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