Thursday, December 15, 2016

SPX S&P 500 Daily Chart; Overbot; Rising Wedge; Negative Divergence Developing; Upper Band Violation

Federal Reserve Chair Yellen caught the markets off-guard yesterday afternoon. The 25-basis point hike was a done deal according to the Fed Funds futures that indicated a 100% chance of the hike and the FOMC did go ahead with the 25-bip hike. The Fed then increased the projection of rate hikes for next year to three instead of two that were touted at the September meeting. An additional hike in 2017 is a slightly more hawkish move.

A surprise occurs sine Yellen is the Queen of the Doves and to suddenly realize that she sprouted a couple of hawk feathers is a serious matter to ponder. The US dollar index pops, the euro drops. Since the Fed will be slightly less accomodative, stocks sold off yesterday. Yellen does not plan to fill the easy money punch bowl as much going forward. The dollar moves higher in conjunction with yields since the Fed added one more rate hike. Emerging markets retreat. The drop in the yen and in the euro, in response to the rising dollar, causes BOJ Governor Kuroda and ECB President Draghi to perform jigs of joy. A weaker currency will help the Japanese and European exporters and economies, respectively.

Since the Federal Reserve always creates drama on Fed day, the charts need a small amount of time to price-in the new information. The US dollar was beginning to top out with the euro starting to bottom but the Fed news extends the ongoing trends of higher dollar lower euro. The euro prints a 1.303-handle and the USD rises above 103!

The SPX daily chart was posted the other day. The thought was for a jog move or two as the topping process, and negative divergence, plays out and price drops Monday, pops Tuesday, drops Wednesday, pops today so its jogging along. Price is printing intra-candle upper shadows that are matching highs as the indicators negatively diverge, which is great for bears, however, look at that pesky MACD line. It remains long and strong so it wants to see another matching or higher high in price which encourages the bulls; perhaps that high print may  be on tomorrow's agenda ahead of the weekend.

The SPX is topping out and almost there. Note the peak in the RSI occurs with the top price tick so that was long and strong behavior into that top so price likely has enough oomph to come back up again for another look. Once the RSI and MACD line negatively diverge when price comes up, the top is in; this should occur at anytime over the next day or two. The histogram, stochastics and money flow are all cooked and want price to retreat now and trend lower. In addition, overbot conditions and the rising wedge pattern are in play both bearish.

Price violated the upper band so the middle band, the 20-day MA at 2219, and rising, is in play. Price is overextended above the moving averages requiring a mean reversion. The sentiment indicators, put/calls, volatility, McClellan Oscillator, bullish sentiment percentages, all indicate excessive complacency and bullish euphoria but the momentum continues to send stocks higher. 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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