Thursday, May 28, 2020
SPX S&P 500 2-Hour Chart; Overbot; Negative Divergence; Rising Wedge; Upper Band Violation
The search for the elusive near-term top in the stock market continues. The SPX gains another 30 points so far intraday. The bulls have their chests puffed out and feel they can do no wrong. Traders and investors say the economic data is improving, a vaccine for the coronavirus (COVID-19) should arrive in the mail any day and the central bankers keep printing money. Life is good in the phony markets. Complacency rules. There is no reason to worry about stocks ever going down again since the Federal Reserve will always save the day. The central bankers are the market. Uncle Frank, who typically plays the investing game safe, decided to invest his life savings in NFLX stock since everybody uses the media service; he has not used Netflix and does not understand it but the financial manager in town, located next to the Family Dollar store, said it is a no-brainer.
With the market euphoria off the charts and traders drinking Fed wine buying stocks with reckless abandon, what could possibly go wrong? Price runs higher today and the bulls feel invincible. Note the tight standard deviation bands that squeezed out the big move higher (pink arrows). Price is running up the top standard deviation band so the middle band at 2995, and lower band at 2914, are on the table.
The RSI and stochastics are overbot agreeable to a pullback. The rising red wedge is ominous. The chart in negative divergence (red lines) so price is moving up only on fumes; the fuel tank is empty. The MACD, and money flow, are trying to squeeze out another hour or two of upside for SPX but note that the MACD is neggie d across the one-month time frame and its goose is actuality cooked. Thus, the top is in. You want to see that MACD and money flow curl over but it looks like a go for the bears now. The SPX daily chart will have to be referenced to see if the neggie d forms there across all its indicators to lock in the downside on the hourly basis and daily basis.
The S&P 500 should roll over on the 2-hour chart going forward so the top is in before the closing bell today. If not, than tomorrow morning as long as happy talk does not hit the air waves. 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 4:16 PM EST: The S&P 500 moves through a 45-point range intraday today with a HOD at 3069 at 1:55 PM EST the highest price since 3/5/20. Into the closing bell stocks fall apart. King Donnie announces plans to speak about the rift with China tomorrow. The orange one also signs an executive order that will try to make life hard on TWTR, FB and other social platforms. The SPX finishes the session down 6 points, -0.2%, to 3030. Keystone extends his right arm and drops the mic.
Note Added Saturday Morning, 5/30/20: Keystone walks back on stage, picks up the mic, and announces that the SPX jumps 15 points, +0.5%, to 3044 in the Friday session. Fed Chairman Powell and President Trump both speak trying to goose markets higher and they succeed. Price remains above the 200-day MA at 3002. Another hanging man candlestick prints although the tail could be a bit longer, and with price at matching highs for three days in a row, the indicators are in neggie d and agreeable for the near-term top to be in place and send stocks lower on both the 2-hour and daily charts. The complacency and lack of fear in markets guarantees the near-term top. Powell and Trump are doing what they can to keep the equity turd floating in the bowl and avoid the flush lower. The expectation is for stocks to fall from here for several days forward. If the SPX does come back up to tease around that 3050-3070 area again, which is only say 20 points higher, that will be the top and stocks will roll over from there. The move lower will be interesting since the SPX weekly chart remains long and strong. Thus, the pullback is probably going to be sharp and quick. Maybe a flash crash. June trading begins Monday and the SPX may dump from -5% to -10% during the first couple weeks of the month. A dump of 150 to 200 SPX points is likely; once it starts you can gauge how much juice the bears have. Of course, Powell or Trump may try to provide happy talk on the weekend or early Monday morning to keep elevating the markets. Asia trading will be interesting on Sunday evening since those markets will react to Trump's comments on US-China relations. The weekly chart is interesting since it wants to see more price highs over the next 2 to 3 weeks. The SPX may flush lower 200 points in early June only to rebound again to print matching highs say by mid to late month and then roll over into oblivion on a weekly basis. Due to the way the weekly chart is setting up, and if Powell and Trump can keep the SPX floating along for another week or two, that would provide enough time for the weekly chart to go neggie d and take a huge flush lower. Thus, two paths. First, which is the one considered more likely for right now, is that the SPX is flushed lower during the coming days and week or two, probably a two-hundo point drop or more. Then stocks rocket launch with a V bottom everyone convinced that was the last flush lower. When price comes up to the matching high in mid to late June the weekly will go neggie d and a more serious top is in place that flushes stocks far lower on a multi-week basis, perhaps a crash. Second, the happy talk keeps stocks floating along. The SPX may pull back and tease the critical 2995-3003 area for a few days but recover again putting us into the second week of June, perhaps mid month. At that time the wheels fall off because the weekly chart will go neggie d and the big flush lower occurs for a multi-week period, perhaps a crash. Considering the erratic price behavior in markets right now, a flash crash scenario is definitely on the table.