The stock market top takes a few days to play out and despite the retreat, the MACD line did not negatively diverge. This leaves the door open for price to return to the 2743-ish level again. The negative divergence in the RSI, histogram, stochastics, money flow and ROC, and the overbot stochastics, and rising wedge pattern, all conspire to send price lower.
The S&P 500 came up to back kiss the 200-day MA at 2743 this week and then had to make a bounce or die decision. It is dying. The S&P 500 receives the 200-day MA smackdown. That level also violated the upper standard deviation band which opens the door to a potential move back to the middle band, the 20-day MA, at 2663.
The 10-month MA is 2742. The 12-month MA is 2726. The SPX is below the 12-month MA so the stock market is in a cyclical bear market pattern. The 50-week MA overhead resistance is at 2729. The 6-month MA is 2713. The 100-day MA is 2702. Price is currently at 2686. The 20-week MA support is at 2680. The 200 EMA on the 60-minute is at 2647. The 50-day MA is at 2615. All Hades would break loose if 2647 fails. The 2726-2729 resistance is uber importante.
Price has trouble overcoming and remaining above the 62% Fibonacci retracement at 2714-ish. You can clearly see the 5 e-waves for the rally (blue). As usual, the middle third wave is always the strongest upside thrust.
The markets are very news driven this year. The happy talk around the US-China trade negotiations sends stocks higher but that was harpooned yesterday on news that President's Trump and Xi will not meet in the near term.
Most importantly, the central bankers are the market for the last decade and they come out with guns blazing this year. The Fed, ECB, BOE, BOJ, PBOC, RBA and many others are flapping dovish wings. The printing presses are going 24/7 flooding the world with liquidity that sends stocks higher. The wealthy privileged class, that own large stock portfolios, dances with glee.
The decade-long central banker financial experiment continues and the economic scientists profess success, however, the final act of the sick Greek-goosing tragedy has yet to play out. As long as investors and traders maintain confidence in the central bankers, the bullish stock market party continues. When confidence is lost in the Federal Reserve, and other central bankers, all is lost; it's ovah, as they say in Brooklyn.
It is perplexing why traders have not lost confidence in Chairman Powell. He was a hawk a couple months ago but now struts around displaying dovish feathers. Will he be hawkish again next week? Obviously he is blown to and fro by the wind and news. The central bankers are clueless even though they pretend to be omniscient.
Traders do not care since a dovish Fed means higher stock prices so everyone jumped on the rally train for easy gains. The wealthy make money effortlessly punching a couple key strokes on a computer while the common folks toil all day long for a meager wage. One would think that confidence would be lost considering the Fed's actions. Perhaps it will be a delayed reaction. Traders may need time for the light bulb to go off in their heads that Powell changes his thoughts and actions faster than a teenage school girl. The Fed performs a complete 180-degree turnaround with monetary policy but everyone yawns.
All that political drama aside, the indicators are weak and bleak on the daily chart looking for more lows. As mentioned above, the MACD never negatively diverged so a matching high would be expected in the days or week or so ahead but the negative news flow punches markets lower (just as all the happy talk pushed markets higher in January). The stock market continues reacting to the news flow on trade and the central bankers and the charts continue to price things in.
The middle band, and 20-day MA, at 2662, a palindrome, is a logical downside target in this near-term. The brown ADX box shows that the Fall collapse in the stock market was a confirmed strong trend lower, however, this big-time upside rally is not a strong rally. The ADX is languishing sideways at 17 unimpressed with the rally.
The SPX weekly chart may want to squeeze out a week or two more of matching or higher highs. That critical 2726-2729 level may need testing again. If the US Congress announces a deal on the southern border wall drama, that may create market enthusiasm. The year is off to an odd start since central banker jawboning sends stocks higher without looking back. The central banker dovishness was expected but not directly out of the gate like it occurred.
Thus, probably a couple weeks of choppy stuff ahead. The SPX may come down to tag the 2662 palindrome and then bounce back up above 2700 perhaps testing the 2725-2730 level over the next couple weeks or so. At that time, the SPX weekly chart may negatively diverge defining a top. This timing is lining up with the Brexit drama, global elections, the US tariffs against China and other serious decisions.
The complacency with the uber lows CPC and CPCE put/calls and elevated NYMO have not yet been rectified so the stock market will need to retrace down sharply at some point forward. This may manifest immediately with the bottom falling out in equities, or, the SPX may come down and bounce off the 2662, move back above 2700, and then flush strongly lower say a week or two out. It is a fascinating time in the stock market. Economic history is being written in real-time. One wonders if confidence is finally lost in the central bankers? 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 4:52 PM EST: The SPX ends the week at 2708 overtaking the 100-day but remaining below the 6-month and the 62% Fib.
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