SPX S&P 500 60-Minute Chart with 200 EMA Cross; Hotter Inflation Sends Stocks South

The SPX 1-hour chart with 200 EMA cross is a favorite ST (short-term) and VST (very short-term) trading indicator that signals stock market direction in the minutes, hours and and day or few time frame. The inflation data this morning is a bit hotter than expected so traders panic believing more rate hikes are coming which will stall the economy and send earnings and stocks into the crapper.

In mid-August, the bears were pushing hard but rejected by the 200 EMA and then on 8/26/22, the trap-door opened and down she went into a bear posture for the short-term. The bulls then took control of the US stock market again last Friday (green circle) as price crosses up through the 200 EMA now at 4060.

Alas, the bull party abruptly ends after the inflation data with the SPX collapsing to 4022 as the regular session is off and stumbling. The drop sends the short-term picture back into a bear posture below 4060. Watch the 4060 like a hawk since it tells you if the negativity is enduring or a fake-out.

The negativity may have legs since the VIX pops above 25.25 identified as a bull/bear line in the sand by Keybot the Quant algorithm. The selling will fade and stocks will recover if the VIX drops below 25.25 and trends lower. Bears are going to extend the selling if the SPX remains under 4060 and the VIX above 25.25.

The W pattern bottom on the chart is a powerful bottom that typically indicates lots of upside strength is on the come. And it occurs as shown in blue. The W bottom is 3900 and top is 4000 so the target is 4100 if the 4K is taken out to the upside. It is and price shoots higher to 4100 satisfying the W pattern.

An island reversal may be on tap. The 4007-4025 gap is bid enough to drive a Mac truck through it. Price collapses to 4022, the top of the gap, and sits there for a few minutes deciding what to do. If price gaps down to 4007-ish and continues lower, that is an island reversal pattern. For the pattern, price gaps up onto an island for a while but then reverses and gaps back down through the same gap leaving the island behind.  Instead of an island reversal, price may simply keep drifting lower to fill the gap. The 4K-ish level is solid support as seen by the many price touches in this area since late August. As this is typed, price sneaks down to 4013 starting to fill the gap but now is back up to 4022.

The green lines show the positive divergence that provided the jet fuel to send the SPX higher. The red lines show the negative divergence when the indicators all run out of gas adn a smack down is expected. The SPX was due to drop in the hourly time frame before the inflation data hit due to the neggie d, as the red arrow shows, and the inflation data simply added nitroglycerin to the downside collapse. The big drop and mini-crash of -2% is due to the slightly hotter inflation. 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 10:05 AM EST: The stock market goes to Hell in a handbag. The S&P is down 108 points, -2.6%, at 4002. The SPX comes down and completely fills the gap so it is not an island reversal but is a gap-fill. VIX 25.73.

Note Added 10:15 AM EST: The SPX is at 4002 with a LOD at 3999. VIX 25.77. The bears are smiling. Watch VIX 25.25.

Note Added 10:37 AM EST: The SPX is at 3996, on its knees, with a LOD at 3995. VIX 25.93.

Note Added 7:56 PM EST: The blood is flowing on Wall Street. It is a crazy turnaround day to the downside after the hotter than expected inflation data. The Dow dumps nearly 1,300 points. The SPX loses 178 points, -4.3%, to 3933. Ugliness. VIX 27.27.