Tuesday, November 27, 2018

SPX S&P 500 Weekly Chart; Positive Divergence Developing; Lower Band Violation

The S&P 500 weekly chart shows the bears smacking the bulls in the teeth over the last two months. The top call was straight forward with the SPX receiving the neggie d spankdown (red lines). The overbot conditions and rising wedge also create the bearishness. So price plummets and now tries to find support along that green trend line.

As price makes a lower low last week as compared to the month prior, the RSI is positively diverged. Ditto the histogram and stochastics. The MACD line, however, remains weak and bleak. Price will bounce due to the possie d, which is occurring this week thus far, but in a few days or week or two, will want to come back down for a lower low to satisfy the MACD line. At that time, the MACD will likely line up with possie d and that will truly be a more solid bottom to buy in this weekly time frame; say, about 2 weeks out.

The SPX has violated the lower band at 2635 (pink) so the middle band at 2808 is on the table going forward. The bulls bot the dip 5 weeks ago as shown by the brown circle. That strong volume would likely be tested and sure enough price rolled over lower again and last week prints in the same price range as the big up day but the trading volume is not as robust (blue circle). This behavior creates lift in price since the bears did not have enough strong oomph to push the stock market strongly lower.

The ADX shows that the SPX was in a strong weekly uptrend during the back half of 2017 into the January 2018 top. The crash occurs and in May, the strong uptrend for the S&P 500 was over (the ADX drops below 26-ish). On the two months of selling action, the ADX is ramping higher and teasing its way towards a strong trend in the 30's. If this occurs, it will indicate that the stock market will be weak for weeks and likely months ahead. The AROON crossovers are verifying the ups and downs in price.

So what does all this mumbo-jumbo and chart spaghetti mean? The SPX bounced yesterday from the possie d (green lines) but after a few days or so will likely roll back over to the downside to satisfy the MACD. Price may print in the apex of that falling green wedge which is a bullish pattern. If you want to go long and hold the position a few weeks, it is probably best to give it a week or two for the MACD line to positively diverge before committing long.

Once the recovery rally begins in earnest (probably in a couple weeks once the MACD cooperates), price may want to seek that 2730-2760 resistance area that contains key moving averages such as the 50-day at 2756 and 10 and 12-month MA's at 2744-2745. 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 Thursday Morning 7:44 AM EST: Fed Chairman Powell rides in on a white horse to save the day yesterday. Powell flaps his dovish wings willing to remain accomodative with low rates forever. The central bankers are the market. Since less rate hikes are now expected in 2019, and the Fed is more accomodative, a dovish Fed, stocks leap higher. The easy money will keep flowing like water. Comically, the SPX rocket launches to......wait for it...... wait a little bit longer for it........2744. The 10-month MA and 12-month MA are both at 2751. This number is uber important and separates the cyclical bull from the cyclical bear. As explained above, the possie d on the daily chart creates the rally, it is simply surprising how strong it is off the bottom, from SPX 2630 last Friday to 2744 yesterday, a 3-day rally of 114 points, +4.3%. Short-sellers are running for their lives creating more upside bull fuel due to short-covering. The 200-day MA is 2762. The 50-week MA is 2758. The 2751-2762 gauntlet is for all the marbles. Stock market bears celebrate under 2751. Market bulls are euphoric above 2762. The battle rages on between 2751 and 2762.

Note Added Sunday, 12/2/18: The SPX ends the Friday session at...... wait for it...... 2760. So bulls are happy that they have shaken off the cyclical bear market and are now back into a cyclical bull pattern ahead above 2751-2752, but this battle will likely continue. Price is at 2760 but note how it got sticky within the key 2751-2762 gauntlet. The battle for this key support/resistance at 2751-2762 continues. The bulls have an advantage now. The Trump-Xi summit results in pushing the new tariffs 90 days into the future. Markets may like that. The 200-day MA is 2762.

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