Wednesday, August 27, 2014

SPX Daily Chart Upward-Sloping Channel

The daily chart remains bullish in the VST. The upward-sloping blue channel remains in play with price teasing the lower rail. The rally move off the 1905 bottom is parabolic. It started with Putin happy talk concerning Ukraine and note how the news overrode the weak and bleak indicators that were in place wanting to see lower lows in price. The rally continued with more Putin happy talk about half way along the up move then on Friday happy talk about more stimulus, especially from ECB President Draghi, created the push higher this week. The entire rally over the last couple weeks is news-driven. Traders are like Pavlov's dog and immediately buy stocks when anyone mentions words like the Fed, central bankers, QE, stimulus, etc...

The maroon lines show universal negative divergence across the peaks creating the possibility of a double top, or M top pattern, now in place. For the very near term, however, the short green lines for RSI, MACD line and money flow want to see higher highs for price after any pull back. Typically, what would be expected is a day or two of weakness due to the neggie d on the stochastics, histogram and ROC, then price returns to current levels where the RSI and money flow should roll over creating another move lower, but then one more move higher would likely occur to roll the MACD over to the downside. So that is two jog moves; down, up, down, up, down. Each move likely needs a day or three so equities may stay buoyant at the 1991-2011 area for a week or three before the firm top is in place and more extended downside begins. The weekly chart is in firm negative divergence across all indicators and wants the SPX price to simply begin falling here forward for the weeks and months ahead.

Note the paltry volume for the historic 2K prints; volume is at the lowest levels of the year; the July 4th holiday the only volume candlestick lower. As far as regular session days go these volume levels are the lowest of the year not exactly a ringing endorsement of the upside. Bulls will, however, quickly point out that many traders are on vacation so volume should be light.

The projection is for price to top out in the days and week or two ahead. Typically when a month is strong it will finish weaker in the last days of the month, however, seasonality-wise, markets are bullish in front of a holiday weekend, so choose your poison. The forecast would be for a down move say into mid Thursday then perhaps up into the weekend. Then next week another jog move as the chart sets up with universal negative divergence and the RSI may sneak into overbot territory. A 1.236 Fibonacci extension for the rally would place price at 2009-2011 so perhaps this is the target for bulls next week. Markets are expected to top out over the coming days and week or two and may be potentially printing a multi-year top right now. The weekly chart is agreeable to extended selling and market weakness to occur at any time and continue forward for a few weeks and months. The daily chart above needs a few additional days to roll over. 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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