Friday, February 17, 2017

SPX S&P 500 2-Hour Chart; Rising Wedge; Overbot; Negative Divergence; Potential Island Reversal; Gap Fill

The SPX 2-hour chart has led the way forward over the last week so we may as well follow it through the potential stock market near-term top which should be at hand. Some sogginess in price has appeared over the last few candlesticks. The neon circle shows a Tweezer Top, typically you want to see longer shadows out the top of the two candlesticks but it is good enough for government work and can be called a tweezer.

Since price makes a matching or higher high at the tweezer top, the indicators can be assessed again to see if universal negative divergence is in play yet, or not. As seen by the red lines, the indicators are all neggie d except that pesky MACD line. Note how it remains long and strong as the price printed the matching high. Bears need the MACD to be negatively diverged to know the top is in. Thus, the SPX will probably come back up one more time for a matching high. At that time the MACD line should finally display neggie d and the top will be in. A jog move, down, up, down, would take a couple-three candlesticks which is today into Tuesday's open (2 to 6 hours).

The US stock market is closed on Monday for Presidents Day. Stocks are typically bullish the day before a three-day holiday weekend so this jives with the MACD line that would like to see another matching high for price before it gives up the ghost, perhaps following the blue path.  If the S&P 500 comes back up to test the highs from the tweezer top, check the indicators. If they are all below the thin red lines drawn in the right margin, then the near-term top is in.

Since the MACD was only a sliver higher or even flat as price made the higher high, the top could already be in with the tweezer top. If so the purple path ahead may be the route taken (dropping from here). Price should seek that cluster area as shown by the brown lines. Note that the SPX remains on Gilligan's Island above 2322. An island reversal pattern may occur if price drops to 2322, then collapses back down through the gap to 2318 and lower. Otherwise, price may choose to simply trend lower and fill the gap at 2318-2322.

Stocks should top out today as described. If not, then first thing Tuesday morning. The only thing that can change the forecast is if the Fed or other central bankers announce more easy money or if President Trump cheerleads the tax plan, infrastructure spending and/or reduced regulations. It will be interesting to see how far the SPX may venture south due to the low put/call ratios.

The Keybot the Quant algo calls out UTIL 666.63, GTX 2364 and VIX 13.17 as key levels that would stop the stock market rally. Any of these crosses (lower utilities, lower commodities or higher volatility) will tell you that more downside is in progress for the stock market. 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 7:43 PM EST: The bulls recover to new highs as the session plays out as described above. The holiday seasonality and long and strong MACD line kicked in for the higher high in SPX price. The SPX ends the week with a new all-time closing high at 2351.16 but not a new all-time high which remains at 2351.31. The new higher high in price prints and if you bring up a new 2-hour chart, you can see universal neggie d across all indicators including the MACD line. The SPX is cooked; there is no more upside oomph available. The only thing that can save the day is central banker or President Trump happy talk. US markets are closed on Monday for Presidents Day. Since the 2-hour chart is cooked and a pull back in stocks can now begin in earnest, it is an interesting place to park the long holiday weekend. If a negative news event occurs over the next three days, the weekend, a negative catalyst, that will have a double-whammy negative effect on stocks slamming price down hard come Tuesday morning. The weekend will probably be quiet and no biggie but if something bad happens, Tuesday could be quite ugly. The UTIL, GTX and VIX parameters above all remain in the bull camp this is a blow to the bear thesis. Market bears need lower utes and commodities, and higher volatility, next week, or any pullback will only be a minor blip. Each one of these three parameters failing will send stocks another strong leg lower. Keystone can update the 2-hour chart again over the weekend. The CPC put/call ratio is at 0.93 and the CPCE is at 0.59 so the stock market should roll over now and sell off until the CPC prints above 1.20 and the CPCE above 0.80.

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