Tuesday, February 21, 2017

SPX S&P 500 Monthly Chart; Overbot; Rising Wedge; Negative Divergence; Upper Band Violation; Price Extended Above MA's

The SPX monthly chart will receive a new print next Tuesday, 2/28/17. February is a big-time up month when historically it is a very weak month for stocks. Note the four white candlesticks gapping higher each month in a euphoric orgy of joy. That rally started with President Trump's election victory and promises of lower taxes, less regulations and huge infrastructure spending. The stock market went vertical after Trump, and his two Goldman Sachs henchmen, Cohn Adn Mnuchin, started slashing financial regulations. A big party is taking place in the financial sector. Wall Street fat cats are staggering around, drunk off Trump wine, dabbing their cigar ashes in the face of the huddled masses.

The red lines show the rising wedge, overbot conditions and negative divergence that correctly forecasted the spring 2015 top. The Fed and other central bankers stepped in to save the day creating that Tweezer Bottom (brown circle) early last year. The central bankers are the market. Stocks rally to new highs last year with universal negative divergence acrosss all indicators (marooon lines) show another market top and spankdown was at hand, and occurs. Stocks began trailing lower in Au gust, September, October, but then the orange-headed one came to power in early November creating the latest push higher in equities (blue line).

The SPX is up for four weeks in a row and February should remain a white (positive) candlestick barring any serious downdraft before next Tuesday. President Trump promised a tax reform program any day so that will receive strong scrutiny.

The SPX catapults above the upper standard deviation band. The bullishness is off the charts. The middle band at 2105 is in play on the monthly basis. With the latest push higher, note the red lines remain negatively diverged for the indicators over the couple-year and longer time frame. Over the last four months, however, due to this wild and strong parabolic rally, there is lots of momentum in stocks, and the short green lines show long and strong behavior in this very near-term on a monthly basis.

The ADX is down at 16 so the trend higher in stocks is not a strong trend. The rally in stocks was a very strong trend (pink box) in late 2013, 204 and into 2015, but not since. The central banker stick save last year and the Trump Rally starting in November have created upside joy in stocks but the ADX trend indicator is not impressed.

Since the parabolic, gapping-up behavior, is reflective of strong momo, a jog move may be in order before a potential multi-year top occurs (down, up, down, or down, up, down, up, down). So March may be a down month, the April back up for the top. Or, generally, down in March, up in April, down in May, then a multi-year top potentially printing in the May-June time frame. Speaking broadly, the above chart is consistent with a multi-year top printing anytime now through June. The March-April time frame may be a prime target for a major top since this is when the ECB will taper its monthly QE purchases even though Draghi does not want it to be called a taper.

So stocks should retreat to take a rest and the middle band at 2105 is a lower level in play which is 260 handles under current levels. Generally, it will not be surprising to see the S&P 500 down in the 2100-2200 range say 2 or 3 months out. I twill depend on how much more mojo that Trump can generate specifically by the tax reform package. 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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