SPX S&P 500 2-Hour Chart; Overbot; Rising Wedge; Negative Divergence; Upper Band Violation

Here is another look at the S&P 500 2-hour chart which has been interesting to watch in relation to the record-breaking uber high NYMO that says stocks are topping in the near-term. The beginning of a pull back started during the first week of the year. The maroon lines show the negative divergence in play but the MACD line remained long and strong. So you knew price would pull back in this 2-hour time frame but it would recover and print another high because of the upside juice still available with the MACD and that occurs going into this week.

The uber low CPC and CPCE put/call ratios print as well as the uber high NYMO signaling bullish euphoria. Traders are drunk as skunks on Fed wine buying stocks at the ask. Everyone is convinced that the bottom is in and stocks will not go down. The SPX was ready to tumble but the Whitehouse and President Trump watch the stock market religiously and unleashed a different plan. Trump uses the stock market as a gauge of the success of his presidency (he will have a sad day in the future when the November 2016 levels are taken out with force). The Whitehouse staff ran to a microphone and proclaimed that the US-China trade talks were going well. That news is good for a half-dozen points higher on the spoo's.

A few hours later, the president tweets that the trade talks are going well. Bingo, another 6-point pop in the spoo's. Treasury Secretary Mnuchin chimes in after that. More upside. The next morning, another tweet. The stock market floats higher on the happy trade talk. It does not matter how the talks are going only that investors perceive that the talks are going well.

This market joy kept stocks buoyant into the Federal Reserve meeting minutes. Bingo. The Fed is turning more dovish and further rate hikes keep fading into the background. Pop. Stocks jump higher. Then in a Bloomberg interview yesterday, Chairman Powell flaps his dovish wings flying above the adoring crowd dropping money. As always, the central bankers are the market. Stocks are pushed ever higher.

The charts have to price in this jawboning joy. The daily chart recovered nicely for the bulls and exhibits long and strong indicators so higher highs are desired on the daily basis going forward. On this 2-hour basis, you can see the top. Price peaks making new highs but the indicators are all neggie d and out of gas. Stoch's are overbot. The rising wedge pattern is bearish. The upper band is violated so the middle band at 2566 is on the table. Weakness is expected and stocks drop on Friday morning during the regular session.

The set-up is interesting since the SPX daily chart wants another high in that time frame. Price is cooked in the 2-hour time frame above and the NYMO has nowhere to go but down which indicates that the stock market is likely headed for a pullback. The bands are coming in tight on the chart above (purple arrows) so a big move in price is coming. The tight bands, however, do not predict direction. In mid-December the squeeze was sharply lower. Last week, the tight squeeze shot price higher.

The RSI above has not reached overbot territory. The charts are still adjusting to the non-stop Whitehouse, President Trump and Federal Reserve jawboning news the last three days. The 2-hour is sending price lower but after a few hours this may recover. The daily chart wants that higher high perhaps on Monday or Tuesday, then we go down sharply. If bad news would occur, such as stalled trade talks, the hourly and daily charts would flush immediately lower.

Thus, either down sharp and quick now then back up to 2640-ish, or up to 2640-ish early next week then down sharply. The Fed turning dovish is a game-changer and adding lots of bullish joy to stocks. As long as confidence in the central bankers remains, the game continues. When confidence is lost, and it is now shaky, all is lost. 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 10:30 AM EST:  The SPX is down 17 points at 2579 only 13 points from that middle band at 2566. This may be the target for the 2-hour chart and a logical place for price to bounce and come back up to satisfy the long and strong MACD on the daily chart. UTIL is at 715 above the key 709.80 level so the bulls are not worried or concerned. If UTIL loses, 709.80, the stock market will drop hard.  Bears need to keep the VIX, now at 19.80, above 19.13 which is a bull-bear line in the sand. If VIX drops below 19.13, the bulls will be cheering, throwing confetti and singing songs of joy as stocks leap higher.

Note Added Saturday, 1/12/19: The VIX drops below 19.13 at noon time Friday so the bears had no hope of gaining any downside traction. Stock market bulls win the game going forward if the VIX remains below 19.13. Bears win above.