SPX S&P 500 Weekly Chart

The stock market selloff finally arrives after a couple weeks of news hype extended the top. The news turns sour on the weekend with coronavirus (COVID-19) cases rising in over 20 US states as well as in many spots around the globe. Beijing is battling an outbreak that may be the start of a second wave. Markets react negatively.

The multi-year lows in the CPC and CPCE put/call ratios made the top and easy call. Traders were exuberant, euphorically happy, complacent and fearless guaranteeing that stocks will go up forever on central banker largess. They needed taken down a peg as always happens with rampant complacency. The SPX hourly and daily charts went neggie d and were agreeable to the selloff.

The daily chart still shows a weak and bleak MACD that wants a lower low in price, that should occur this morning with S&P futures down -70 points off the lows from an hour ago down -95. The daily chart will likely set up for a bounce this week. The key as to whether the selloff has legs or not rests with the weekly chart.

The February top was an easy call with the negative divergence across all indicators creating the spankdown as expected (red lines). Ditto the bearish rising wedge pattern and the overbot RSI, stochastics and money flow. The SPX drops into the March bottom and as price prints the lower low on the weekly basis, the RSI, stochastics, and money flow are positively diverged, agreeable to the bounce, along with the oversold RSI and stochastics, but the MACD line and histogram remain weak and bleak. You would expect price to bounce for a week or two off the possie d, but then price should come back down to honor the weak MACD and at that time, possie d would likely develop for the MACD and histogram, and identify the bottom technically. The Federal Reserve would have none of this technical mumbo-jumbo and instead fired off money bazooka's like crazy men once again saving the day and stock market to protect the wealthy class. The central bankers are the market.

Since the rally took off higher from the March bottom and did not come back down as the chart dictated it should, it is clear the rally was created by external forces namely the central banker money printing and positive news hype about the coronavirus vaccines and such. The stock market then goes into a parabolic up move everyone convinced that the central banks can keep stocks elevated forever on easy money. What a wonderful world--for the wealthy elite. Price prints the matching high, a mini Tweezer Top if you will, over the last couple weeks. Since price has matched the prior high, the indicators can be studied to see if negative divergence is in play.

The red lines show that with the matching high in price, the RSI, histo, and money flow went neggie d creating the smackdown in equities last week. The overbot stoch's also contribute negativity. However, the MACD line and the stochastics line remain long and strong on this weekly basis wanting price to come back up again for another matching high. This would be expected and the only thing that can change that would be negative news. Positive news would obviously send price higher. The negative news hits with people fearing a second wave of the virus so the new week begins with heavy selling pressure.

So the expectation would be for price to bounce in the couple weeks ahead and come back up to 3200-ish where all indicators should be neggie d and a multi-week downswing would then begin. With the negative news hitting the wires left and right as this week begins, the other outcome is the market simply tanking from here and not coming up for the other high a couple weeks out.

Just as the March bottom was truncated due to the happy talk, the upside may be truncated due to the gloom and doom talk. That gap-fill above 3250 may be elusive for a while, perhaps for months and years. It is interesting that the Aroon negative cross occurs but during the whole rally the last nearly 3 months, an Aroon positive cross has not occurred.

The days ahead will be for day traders and experienced professionals since the waters may be choppy. If the VIX remains above 40 and climbs higher, extremely large point swings intraday and day to day will be on tap. That may begin today. Overall, sogginess would be expected going forward on the weekly basis with the top in now, or, the top will be in a couple weeks out. Watch that 50-week MA at 3009 as a bull-bear line in the sand. Nothing good will happen, only pain and misery, if the S&P 500 loses the 3009 level.

The put/call ratios can help identify a quick tradeable bottom this week. Watch for the CPC to move above 1.20 and CPCE above 0.80, this could happen today if folks panic, and that will signal that it is time to nibble on longs. The selling will continue in the daily time frame, this week, until those put/call ratios show panic and fear. Keep monitoring the weekly chart above because once it commits to moving lower it will be a multi-week and probably few-month affair. 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.