SPX S&P 500 Daily Chart; Expansion (Megaphone) Pattern; Negative Divergence Developing

Here is a look at the SPX daily chart. A Harvard grad could write a dissertation describing that pile of spaghetti above. Let's dig in and see if there are any tasty morsels to chew on. Last week, stocks were pumped higher by the Trump happy trade talk and Fed dovishness. The central bankers cannot help themselves. The global central bankers are in collusion pumping the world's stock markets higher since March 2009 to protect the wealthy elite class that owns large equity portfolios. Printing money is the creed that all central bankers live by. The central bankers are the market.

Typically there is a 25 to 30-point bounce in the spoo's on Fed happy talk and the Whitehouse and President Trump positive comments on the US-China trade talks are good for a half-dozen points per sound bite. Go back seven days. See the red negative candlestick. Stocks were selling off on higher volume on 1/3/19 (distribution is occurring). That is when the Whitehouse began pumping equities with happy trade talk rhetoric and you can see the thrust higher each day last week in the SPX as the Fed then chimed in that rate hikes are pushed into the future. Chairman Powell borrows former Fed Chair Bernanke's helicopter and begins dropping money from the sky. Traders rejoice praising these modern day money God's.

Note on last week's up candlesticks, however, the volume candlesticks fade lower each day and none of the up days were able to exceed that big 1/3/19 sell day. If this was a strong stock market rally with legs, the volume should be higher especially at the beginning of the year. Price will likely want to come back down to take a look at that 2450-2500 area again to test that volume candlestick. If the SPX comes down and then bounces on stronger volume, the upside rally will have strong legs. If not, price may want to relax and slump over and drop to take another look at the December lows at 2350-2400 and deciding to bounce or die from there.

The SPX enjoys the sound bite rally last week making higher highs. The RSI has leveled off, which is neggie d. Ditto the histogram. Also the stochastics that are also overbot wanting price to take a rest. The MACD line and money flow, however, are long and strong wanting another higher high in the daily time frame. So price may want to jog up and down each day until the MACD line and money flow can set up with neggie d and identify the near-term top.

A guess would be a down day (Monday), then up (Tues), down (Wed), up (Thur) and perhaps on this higher high in price above 2600, the MACD and money flow may be neggie d and then it will be down time in the daily time frame. This will likely kick in the NYMO negativity which is record-breaking.

The ADX line shows a strong trend lower during October, November and December but this rally is not a strong uptrend. Price violated the lower band at 2382 so the middle band at 2521 was on the table which was achieved. Price may now want to tag the upper band at 2661. The 50-day MA is at 2635 which is worth of a back kiss. Ditto the 100-week MA at 2615. So the potential topping area for the daily chart is the 2596-2661 area.

The chart clearly depicts an expansion pattern (blue lines) also called a megaphone pattern due to its shape. Keystone added the mouth hole and handle to the megaphone so you could feel the vibe. That upper blue trend line is in the 2640-2700 area for the next couple weeks which jives somewhat with that 2596-2661 price area.

Taking a look at the top ticks in price, that thin blue line may be a better match for the upper trend line although it results in a skinnier megaphone, which is okay. The interesting aspect of this is that this thin blue trend line is at 2596-2635 over the next couple weeks which jives nicely with that 2596-2661 price area. The SPX stopped Friday at that gap level at 2600, also a psychological level. There is another gap above, big enough to drive a car through at 2635-2650 so price may want to top out in this near-term at this gap-fill level which jives with all of the above discussion.

Any move higher depends a lot on the US-China trade negotiations and further Fed comments since those are the two suitors that took the market to the dance last week. The death cross occurs in early December (black circle) so the stock market will remain sick in a cyclical bear pattern until a golden cross develops.

The pink rectangle box shows the slope of the 150-day MA which is now negative. See how it flattened and then rolled over to the negative side? This signals that the SPX is in a cyclical bear market and it will not be able to return to a cyclical bull until the 150 flattens and reverses to the upside.

Back to the megaphone. After price tops in the days ahead due to neggie d, of perhaps due to negative news, look at the drop the expansion pattern predicts down to SPX to 2100-ish in late February early March. Do you think the megaphone pattern will play out? It would be comical since the Wall Street Einstein's call for SPX 3000, 3100, 3200 and higher for this year. 

The bulls receive a big feather in their caps by pushing the VIX below 19.09 (a number identified by the Keybot the Quant algorithm). The rally will continue higher and higher as long as the VIX remains below 19.09. Stocks will stall and slip away to the downside if the VIX moves back above 19.09. The VIX begins trading 3 AM EST Monday morning so take a gander at volatility then to see how the stock market will trade in the regular session. Keystone has been bringing on index shorts the last couple days, for VST trading, but the Fed joy punches those short trades in the face. Stocks should receive a pullback in the days ahead from that elevated NYMO. 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.