Thursday, May 19, 2016

SPX S&P 500 2-Hour Chart H&S (Head & Shoulders) Downward-Sloping Channel Positive Divergence Lower Band Violation

The bears keep trying to push lower but the bulls are not giving up the fight. Keystone's prior H&S chart receives a lot of interest on the web so let's take a closer look at the head and shoulders chart pattern with a 2-hour chart. All those lines look like spaghetti. The blue lines clearly show the head and shoulders pattern that is in play with neckline at 2040, which is also very strong price support, and head at 2111. This is a difference of 71 points so a downside target of 1969 is in play if the 2040 fails and the SPX stays under the 2040 level.

The neckline failed today but price recovered due to the positive divergence (green lines) and oversold stoch's. The move today is a textbook back kiss of the neckline of a textbook H&S pattern. Price has to make a bounce of die decision from 2040 tomorrow morning. The SPX violated the lower standard deviation band so a move back to the middle band at 2051 is on the table and also the upper band at 2074 (pink). The downward-sloping channel (purple) clearly shows a pattern of lower lows and lower highs a bearish indication.

Considering the possie d, oversold conditions, lower band violation and bottom channel trend line support, the bulls likely have the advantage in the hours ahead. If the top standard deviation band moves lower and joins the upper channel trend line, price may seek the top of the channel at 2060-2070 to confirm the pattern of lower highs before potentially resuming the downward path which remains in play on the daily time frame.

The full moon peaks on Saturday and stocks are typically bullish moving through the full moon another plus for bulls. OpEx is tomorrow so volume will be robust after the opening bell and before the closing bell adding to the excitement.

Note that price did not come down to oversold conditions for the RSI and money flow. Typically, when price eventually washes out at some point in the future you will see the RSI and money flow print very low into the oversold zone.

Keybot the Quant trading algorithm remains on the short side and is tracking SOX 649.27 (semiconductors) and XLF 22.79 (banks) s the two key drivers of stock market direction currently. The market bulls need SOX above 649.27. The bears need XLF under 22.79. If the status quo remains with bearish chips and bullish banks, the stock market will float along sideways with an upward bias into the weekend.

The strongest price support/resistance levels are; 2071, 2067, 2061, 2057, 2046, 2040, 2032, 2022-2023, 2019, 2011, 2002 and 1997. The 20-day MA is 2067. The 50-day MA is 2059. The 12-month MA is 2025 ( a critical cyclical market signal).  The 50-week MA is 2024. The 200-day MA is 2011. The S&P 500 started the year at 2044 and is negative by four points; the SPX benchmark index is down -0.2% in 2016.

What does all this mumbo-jumbo mean? Boiling things down to a simple level for Keystone's simple mind, if the SPX heads lower from 2040 and if the XLF loses 22.79, stocks will be in huge trouble with lots more downside ahead. At that point, watch the SPX 2025 level a major line in the sand where market mayhem and carnage would begin. The SPX will likely target the 1997-2002 landing zone if 2025 fails and then price would continue lower to the 1969 H&S target as time moves along.

If stocks sell off but the XLF does not go under 22.79, then bears got nothing and stocks will recover and rally. If stocks move above 2040 heading higher, but the SOX does not go above 649.27, the bulls got nothing and stocks will reverse and head lower intraday. If stocks trade higher and the SOX 649.27 is taken out to the upside, the rally will gather strong steam and stocks will be rocking and rolling higher into a triumphant and glorious weekend.

The bulls are favored in the hourly time frame ahead as per the above discussion; the bears need either negative geopolitical news or bad news with the banks. Watch SOX 649.27, XLF 22.79 and SPX 2025 since these three parameters determine market direction for Friday and the fate of bulls and bears going forward. 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 Saturday Morning, 5/21/16: The chips catapulted higher so the bear's fate was sealed. The scenario, ' if stocks trade higher and the SOX 649.27 is taken out to the upside, the rally will gather strong steam and stocks will be rocking and rolling higher into a triumphant and glorious weekend' occurs. Market bulls will need stronger retail stocks to continue the stock market rally. Market bears will need weaker semiconductors and financials to take stocks lower.

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