Monday, August 4, 2014

SPX Weekly Chart Upward-Sloping Channel and 20-Week MA Potential Failure

We watched the SPX set up with the negative divergence (red lines) over the last month or two. The initial spank down was three weeks ago due to the neggie d but as stated at the time, the MACD line was still upward sloping (long and strong) so price would likely recover to the highs again, which it did. At that point two weeks ago, with price printing the 1991 intraday all-time record high, the indicators are set up with universal negative divergence in the very short term as well as over the multi-month time frame. Splitting hairs the MACD may have a tiny bit of juice remaining but that will probably be spent during a recovery rally.

So the smack down occurs as projected. Like most tops, they are not difficult to forecast if using neggie d. Price collapsed from 1991 to 1925 right now sitting at the 20-week MA at 1915. This is exactly where price placed the low and bounced on Friday. As mentioned in the SPX support and resistance missive this weekend, a failure of the 20-week MA will unleash a pent-up rage not seen in about two year's time. The pink circles show the seven tests of the 20-week MA since late 2012 all resulting in a bounce and bullish victory, well, except for now which is in progress.

Price must choose to bounce, or die, from this 1915-1925 cliff edge. A rupture of the 20-week MA finally sets up a move lower to test the 50-week MA at 1835.13, and rising, not seen since November 2012; 2 years and 9 months ago. The selling volume was strong last week and a test of the prior late April action at 1850-1880 is a reasonable downside expectation. In the weeks or month or two ahead the 50-week can easily move higher into this range providing a confluence in the 1850-1880 area and providing more street cred for this zone.

The MACD cross occurs so the bears are happy to see that (red circle). The bears should be able to run with the ball for quite some time. The projection is for lower prices for the weeks, months and perhaps even a year or two ahead. The first critical test is this 20-week MA area at 1915-1925 where price will bounce, or die. A recovery rally is a reasonable expectation but the projection would be for a move to 1945-1980 followed by a strong collapse lower. Watch the 20-week MA closely to see if stocks fall down the rabbit hole right away, or not. 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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