Wednesday, February 1, 2017

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

The monthly charts receive new data points yesterday for the EOM. February trading started today so it is the new candlestick on the right. The broad stock markets are likely printing multi-year tops this year so perhaps the chart will provide clues now that a new number is cast in concrete.

The chart looks like a bunch of spaghetti. The red lines show price in a rising wedge pattern which is bearish and the collapses from rising wedges can be very nasty. Stochastics are overbot which begs for a pull back in this monthly time frame. The red lines for the indicators over the two-year period show universal negative divergence. Price is cooked; it has run out of gas to take it higher.

In the shorter term, the last couple-three months, price is higher as of today's candlestick so checking the indicators, the RSI is flat which qualifies as neggie d. Stochastics are neggie d over the last two candles. Histogram and MACD line, however, are long and strong (little green lines). Those pesky bulls. The bulls have the Fed and other central bankers, and now King Trump that wants to provide loads of dough for infrastructure spending, all rooting for them and pumping the stock market higher. So a jog move would be in order, down one month or so, then back up to look at the highs one more time, then roll over, perhaps not seeing these current highs again for 5 to 8 years.

The ADX shows that the strong multi-year trend higher in the stock market ended over one year ago. The central bankers are powerful. ECB President Draghi is printing money like a madman. The monthly purchases by the ECB decrease from March to April. Draghi is adamant at not calling the move a taper. Keystone calls it a taper. Trades may begin sniffing out the monthly decrease in QE purchases which will pump the stock market up less. In past times when the Fed was thought to want to taper, US markets would sell off about six weeks prior. Thus, backing that away from April places the timing in mid to late February. The timing matches with a potential down up down jog move in the monthly time frame.

Price has violated the upper standard deviation band (brown) so the middle band at 2101, and rising, is on the table. Price is above the 10-mth MA above the 12 MA, above the 20 above the 50 above the 100 above the 200 so a mean reversion is desperately needed. Some of these moving average lines need back kissed; price needs to show them respect. The 10-mth MA at 2183 is an important level that the old-timer's like to watch, many algo's have it programmed into their models; it is in the Keybot the Quant algo. The 12-mth MA at 2163 is Keystone's cliff signal; all hope is lost for the stock market if the 12 MA fails.

Volume was robust in November after President Trump was elected but note that volume was not as strong as the selling volume one year ago. Price should come down to test the body of the candlestick from November to test that big volume. Bulls will need to show huge volume to prove that the upside rally can resume. If volume is strong to the downside it would be another indication that the party is over.

What does all this mumbo jumbo mean. Boiling it down into a small nugget, the SPX will likely print a soggy month for February, but price should recover again to satisfy that long and strong MACD line, but as price rises the MACD line will likely roll over. Watch for a negative cross with the MACD and its signal line. The stock market may be printing an epic top with only a couple more months left in the party, or perhaps less if everyone runs for the exits at once. 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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