Tuesday, July 28, 2015

SPX S&P 500 Daily Chart 6-Month Sideways Channel Island Reversal Important Moving Averages

Stocks log a five-day downtrend after traders had become complacent and worry-free. Price came down to the 200-day MA at 2064 and bounced. The extremely important 10-month MA is also at 2064. The light blue lines show the island reversal pattern that occurred. About two weeks ago, price gapped higher and then spent 10 days on the island above 2080. Price then came back down and fell directly through the same gap as the upside creating the island reversal. Price will likely want to revisit this 2077-2080 area.

The dark blue lines show the ongoing six-month sideways channel through 2045-2130. Bulls win big above 2130. Bears win big under 2045. The battle continues in the middle. The red lines show negative divergence across all indicators across the five month time frame where price punched out new all-time highs. For the last few days, the indicators are weak and bleak wanting to see further lows after any bounce. S&P futures are up a robust +12 three hours before Tuesday's opening bell.

The slope of the 150-day MA is an important cyclical signal that you can use to gauge all your stock positions. Very simply, the stock or index is in a cyclical bull market pattern if the 150-day MA slopes higher and in a cyclical bear market pattern if the slope is downward. The pink line shows the steady rise over the last few months as traders drink Fed booze and inject ECB crack into their veins buying stocks regardless of price. The central bankers will always support the stock market so traders show little concern or worry. The pink circles show recent times where the 150 threatened to roll over but the central banks are always there to keep pumping and save the day. The early July flattening was rolling over but that was saved by the ECB that saved Greece. The spike higher and Greece bailout rally boosted the slope of the 150-day MA to make the bulls happy. Now the 150 is flattening again. Will the 150-day MA roll over and start sloping lower? If so, the stock market will trend lower for weeks, months and perhaps a year or two ahead.

On today's prospective bounce, watch the gap level discussed above at 2077-2080 and if that gives way an important battle will take place at the 150-day MA at 2084. Reference the prior SPX S/R missive for price levels that will attract price.

Keystone's proprietary trading algorithm, Keybot the Quant, remains long and is tracking financials and volatility. The market bulls need VIX under 13.85 to prove they have the beans for a sustainable upside rally. The market bears need to push XLF under 24.82 to accelerate the market selling and Keybot will likely flip short. If financials remain bullish, and the volatility remains bearish (VIX above 13.85), then stocks stagger sideways with an upward bias.

A key gauge to tell you market direction after the opening bell is the VIX 15.38 level (the 200-day MA). As explained in the prior chart (scroll back to review the chart), the bears will growl strongly above 15.38. If the VIX drops back under the 15.38 today, the bears got nothing. 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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