There is a lot going on in the spaghetti above. With the low prints on the put/calls signaling rampant complacency, a near-term top is at hand so it is simply a matter of pinpointing the top through negative divergences and other charting techniques. During the Wednesday, 5/27/20, trade, the SPX daily candlestick prints a hanging man in all his dying splendor. Ambrose Bierce is intrigued at the vision of a hanging man as he wrote in An Occurrence at Owl Creek.
The hanging man candlestick typically occurs when a trend change is about to happen. Note the tail, or shadow, of the candlestick is twice, almost three times, as long as the head; this gives the hanging man some street cred. It tells you that the selling action was super strong even though equities ended up on the day hinting that the underlying market is weaker than anyone realizes.
The trading volume is unimpressive for the new high for the 2-month rally. Most of the volume is on the sell side and the total volume could not even overtake the buying volume from six days ago at SPX 2850-ish. For a breakout, much larger volume would be expected.
The stochastics are overbot and agreeable to a pull back in prices although the RSI is not overbot. The red rising wedge pattern is ominous. Remember, the collapses from rising wedges can be quite dramatic. A rising wedge is a man dancing on the edge of a cliff. All is fine as he displays smooth moves along the trail until he trips over a rock. Typically, he would simply fall to the ground and will pick himself up again. For the rising wedge, however, he trips, and falls off a cliff; broken bones and perhaps death is guaranteed.
The indicators are all in negative divergence except for the RSI and if you squint you can see that the MACD line is trying to eek out a bit more upside. This hints that a couple day or so jog move is likely to place the top (down for a day or so but then back up for a matching or higher price high when the RSI will go neggie d). The top is in when the RSI and MACD go neggie d. It could be today. If stocks pop at the open, there's your higher high, but the two parameters roll over, the top is in.
The standard deviation gold bands show price violating the upper band so a move back to the middle band at 2909, and even the lower band at 2793, are on the table. However, at the same time, the standard deviation bands are squeezing in tight (gold arrows). Look at how wide the bands are in March and April and then they skinny-down this month. Tight standard deviation bands indicate that a huge move is on tap but the bands do not predict direction. Sometimes the move is straight vertical, or straight south, or sometimes there is a little fake-out move for a few days before price makes its final decision in the opposite direction for the big move. That is where the chart is now. Note that price was near the bottom band only nine days ago. The bulls are feeling pretty good that the tight bands will squeeze the move higher as it has for the last week but the jury is out. In the next few days the story will be told. Either price explodes higher from here running up the top side of the band to 3050, 3100 and higher, or, a sharp reversal occurs and the tight bands send price drastically lower quickly.
The SPX tested the 20-day MA and then gapped-up through verifying this few-day rally. Price is now above all the moving averages a bullish signal but since it just occurred you have to give it a couple days to see if it holds. That 2965-3020 cluster range is no-man's land so watch to see if price relaxes back below 3020 which tells you the market cannot make up its mind as to what it wants to do. Of course bears need price to come back down through the moving averages. Each day that price remains above the 3020 level, is another day of bull joy that makes stocks stronger and stronger going forward.
The 150-day MA slope is a useful tool in determining cyclical direction for any ticker or index. If you are long, and the 150-day MA is sloping higher, you are in good shape, if you are short, you are wrong. If you are short, and the 150-day MA is sloping down, you are in great shape, if you are long, you are wrong. The 150-day MA is at 3019 flatter than a newlywed's souffle, as Art Cashin would say. You can see how the 150 is sloping down in March and April (cyclical bear market) now flat. The bulls have to curl the 150-day MA higher to turn the stock market back into a cyclical bull. By definition, the moving average will start to move higher if price is above so watch that 3019-3020 level like a hawk. Above 3020, bulls rule. Between 2965 and 3020, the bulls and bears battle. Below 2965, carnage begins.
The ADX is at a paltry 13. That is pitiful for the big-time rally. You can see that the last strong trend in markets was the downside selloff during March. As April begins, and stocks rally, the move higher in equities has NOT been and is NOT a strong trend higher. Considering the euphoric rally right now, the ADX should be above 30 on its way to 40. It tells you the rally is phony-baloney and once again due to the Federal Reserve's Keynesian money-printing schemes that keep the crony capitalism system afloat.
The Aroon is at historic levels. The green line is pegged at one hundo maximum bullishness. The red line is smashed to zero also displaying maximum euphoric bullishness. The indicators cannot get anymore bullish. We are at the top of the mountain. Everyone is drunk as skunks off the Fed, ECB, BOJ and PBOC booze, the four central banker horseman of the financial apocalypse, buying stocks with reckless abandon. Aunt Tillie, known for her frugality, just took her entire life savings to the broker in town, located next to the laundromat behind the bowling alley, and purchased AAPL and AMZN stock. The 25-year old financial manager told Tillie that the stocks are guaranteed to go up and she is diversified owning both Apple and Amazon. Tillie can hardly wait to tell the ladies at the Garden Club about her great investment decision. The Aroon has no choice but to move in a bearish direction with a potential negative cross in our futures.
Summing up the above mumbo-jumbo, and considering the rampant complacency and fearlessness in the stock market, equities should top out at anytime, any hour, any day forward, as soon as that RSI goes neggie d which may be today, tomorrow or Monday. Of course, a good news catalyst, such as happy vaccine talk or more central banker largess, will bump stocks higher delaying the top for a couple more days. Considering the ominous rising wedge, the collapse in stocks may be a doozy perhaps in the -5% to -10% range. Plan accordingly since time is short.
The melt-up in stocks in recent days is on the scary side because of the complacency. Do not be surprised if a flash crash event occurs in the coming days. That would get everyone's attention. 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 Saturday Morning, 5/30/20: The Aroon red line jumps up to 60. The Aroon green line falls to 96. Is a negative cross in the offing? Look at what happened after late February when the Aroon negative cross last occurred. Another hanging man prints on Friday, 5/29/20, although the tail should be a bit longer.
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