SPX S&P 500 2-Hour Chart; Overbot; Negative Divergence Developing; Two-Leg Bull Flag

There is a lot going on in markets technically, politically and seasonality-wise. Since the low CPC and CPCE put/call ratios identify uber complacency and fearlessness in the stock market currently and a top at hand, it is useful to take a gander at the 2-hour chart to see when this top may occur in the hours and days ahead.

Political-wise, the US-Canada trade deal creates market joy like the US-Mexico deal the other day. Of course the central banks create joy with the ongoing Powell Rally from last Friday (purple circle). Powell hinted that the December rate hike may not be a done-deal and the dovishness creates market upside (the September hike on 9/26/18 is a done deal). so it is a question of what is priced-in. The Powell joy is likely priced-in now and the Canada deal may even be priced-in and result in a sell-the-news event.

Seasonality-wise, stocks are typically bullish the two days in front of a three-day weekend. US markets are closed on Monday for the Labor Day holiday so this provides the wind at the bull's backs for tomorrow and Friday. However, when a month is strongly higher, like August, it typically sell off the last couple days which is tomorrow and Friday. New money typically provides buoyancy in stocks when a month begins which is Tuesday of next week, 9/4, when US traders will return to work. Considering the recent strength, the bears likely have a bit more of an edge to finish this week due to the already big upside rally and then the bulls may come to play again on Tuesday.

Those factors aside, the chart shows a two-leg bull flag pattern playing out (blue). Using easy numbers, the rally begins at 2810 to 2870 for the first leg, which is 60 handles, then the textbook consolidation where price moves sideways to sideways lower creating the flag, then leg two begins at 2855 so the upside target is 2915 which is hit today satisfying the pattern. You could say that leg one is 2805 to 2873, 68 handles, so 2855+68=2823 which leaves a few more points of upside available (perhaps for Tuesday or Wednesday).

The RSI and stochastics are overbot and want to see price pull back. The red lines indicate negative divergence that wants price to pull back. The MACD line is long and strong that wants another higher high in price. So, in the 2-hour time frame, price should drop but then come back up again for the higher high to satisfy the MACD. At that time the near-term top may occur if the MACD line goes neggie d with the next price high. If price drops then comes back up that would likely take 2 or 3 candlesticks for the MACD to turn neggie d so that would be 4 to 6 hours which would be tomorrow for the potential top (in this 2-hour time frame).

The SPX daily chart has a long and strong RSI, although it is overbot, so it likely wants to come back up for another high after a pull back in the daily time frame. That higher high may occur in conjunction with traders returning to work on Tuesday and Wednesday. Remember, the complacent put/calls want a top to be placed at any time any day ahead. If the daily wants to come back up after a one or two day pullback that higher high in the SPX may coincide with some buoyancy due to the month of September beginning on Tuesday and Wednesday.

So if you toss all of the above mumbo-jumbo into the air and sprinkle some magic dust on it all, stocks may top out tomorrow (as soon as the MACD line above goes neggie d) and the SPX finish the week soggy since it already had a big up month. Friday, during the last couple hours, may see lift in stocks as the joyous long holiday weekend, marking the end of summer, approaches. If the daily was fully neggie d, the downside would have legs as soon as the 2-hour tops out, but the RSI likely forecasts a jog move, down for a day or two, perhaps part of tomorrow and Friday, then up again, probably Tuesday maybe into Wednesday, and that may be the near-term top where the CPC and CPCE put/calls can finally flex their muscles and create substantive downside havoc.

The new moon peaks on Sunday 9/9 so stocks may be weak from 9/7 through 9/10. Another interesting aspect of all these moving parts is Keystone's Eclipse Indicator that identifies the 8/13 through 9/10 period as having potential as a significant market top. Thus, there may be serious weakness ahead for the stock market from say, 9/6 into the week of 9/10 (which would satisfy the uber low put/calls that want a strong pull back).

The Monthly Jobs Report is on 9/7 adding more drama as if there is not enough already. Keeping it simple, just watch the MACD line above, price may trade down to begin the Thursday morning trading, but will likely recover and come back up to the highs (because of the long and strong MACD line), at that time, maybe going into lunchtime tomorrow, if the MACD line turns negge d (sloping down) with the next price high, the near-term top is in. Taking a guess, the top may occur between noon and 2 PM tomorrow. The SPX daily chart can then be monitored to see how the downside will progress. Everybody and his brother is bullish now as evidenced by the low put/calls and the subdued VIX. There are no bears remaining, the last one left town tonight on the subway. 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 Monday 9/3/18, Labor Day holiday: The SPX tops out at 2 PM Thursday as mentioned above although it did not quite reach the highs from Wednesday. The stock market trends lower through Friday but, as explained, the SPX daily chart wants to see another high in this near-term.