Thursday, June 2, 2016

SPX S&P 500 Monthly Chart Standard Deviation Bands Tighten Forecasting an Epic Move in Stocks for the Months Ahead

The EOM was on Tuesday on 5/31/16 and May is a positive month. June begins at SPX 2097.

The red lines show the wicked rising wedge pattern, negative divergence and overbot conditions that made the top call last year easy. The purple circle shows a Tweezer Bottom that occurs in January-February and the rally higher has been very robust. The red lines show that when price printed the February low, the indicators were printing lower lows and preferred to see price come back down again after any bounce in the monthly time frame. The SPX has only headed higher instead.

Stocks are in a sideways choppy pattern the last couple years. The recent action has been chewing up bulls and bears alike. Once volatility moves higher, the action will become far more dramatic with huge point swings intraday and day to day. The volume during the December-February selloff is far more than the volume during the recovery from February to present.

The standard deviation bands are coming in real tight, the tightest in many years; decades. There is a huge move on tap but the tight bands do not predict direction only magnitude. Thus, say at Labor Day, about 3 months from now, the SPX is either going to be above 2200 marching higher, or, in the 1900's collapsing lower. The tight bands signal that something very epic is about to happen in markets from now into the Fall.

Rising wedge patterns are ominous and typically require huge reversals of 50% and more many are 100% reversals. Very few market participants are ready for moves way lower at sub 1400 and even sub 1100 but that is what a rising wedge would be expected to eventually shell out. Price is in the neighborhood of last year's April and May record highs and note that during that same time period the indicators are negatively sloped (thin red lines). Price rises to prior levels but the indicators are not enthusiastic. Negative divergence would occur if price makes a new record high with the thin red lines all showing neggie d; that would result in a selloff after the new highs are printed.

The old-timer's follow the 10-mth MA and Keystone uses the 12-month MA as a key cyclical signal for stocks. Both are at 2032-2033 so this level takes on extreme importance. The stock market is toast if it loses 2032. Price, however, is well above at 2105. The 20-mth MA is 2047. Lumping these three together is 2032-2047 so consider this level a key pivot area.

The bulls are winning and will receive victory going forward as long as they stay above the 2032-2047 area. A huge stock market directional move is about to occur and last about 2 or 3 months. If bulls touch the upper band at 2166, they will likely run it vertically higher after that. If price reverses to the downside to the lower band at 1929, the SPX will tumble lower after that. As summer ends and the beaches close, one side is going to be very very happy and the other side very very sad. Economic and market history is about to be written in the months ahead. 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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