SPX S&P 500 Weekly Chart; Overbot; Rising Wedge; Negative Divergence Developing; Upper Band Violation

The US stock market snaps back to the upside on Friday after the outside reversal on Thursday but unable to print new highs. The daily chart is topped-out with negative divergence but the dip-buyers remain anxious to go long stocks for fear of missing out on the rally everyone is boasting about.

Stocks should be weak for a few days due to the neggie d in the daily time frame, but should recover again for another matching or higher price high due to the long and strong MACD line and RSI on the weekly chart. The overbot RSI and stochastics in the weekly time frame will conspire with the neggie d on the daily chart to create a few days of weakness. The 20-day MA support is at 4501 and the 50-day MA support is at 4371.

The full moon peaks at 2:31 PM EST Tuesday, the Sturgeon Moon, so stocks may lift higher from Tuesday into Wednesday. July was a big up month for stocks and typically when you see stocks running higher like that the last 2 or 3 days of the month tend to finish lower. Monday is EOM. New money tends to float into the stock market the first couple days of a new month. The US Monthly Jobs Report is Friday at 8:30 AM EST.

The SPX weekly chart is important since a multi-week down move will begin once it tops out with neggie d. Sometimes it is like herding cats waiting for ALL the chart indicators to turn down as price moves higher. The MACD was the only remaining parameter that was long and strong but you can see that the RSI has now eked out a tiny higher high which provides more strength for price to come up again on the weekly basis.

The histogram, stochastics and money flow are negatively diverged and want the multi-week downturn to begin now. Ditto the overbot RSI, stoch's and money flow. You know the drill. Price will need to jog (down-up) for the RSI and MACD to go neggie d. Price may also jog once, and the RSI returns to neggie d, but the MACD line may still be long and strong so it will need another jog (down-up on the weekly basis). For now, let's say that the weekly chart will top out after one jog move.

The Aroon green line indicates that 100% of the stock market bulls believe 100% that stocks will go up forever especially in the many weeks ahead and the red lines shows that nearly 80% of the bears believe stocks will go up forever. This is rampant complacency and fearlessness with owning stocks and you know what happens when everyone is puffing their chests out on the long side.

The ADX pink boxes show that the downside collapse in the SPX was a strong trend lower in 2022 but that strong trend ended last Fall in the October/November time frame. Stocks bottomed and rallied ever since. The ADX moves higher and is about to indicate that the up move in the stock market is a strong trend. The bulls may cheer but that should be tempered since you typically want this ADX set-up when the chart is set up like last Fall or early this year. The rally is long in the tooth as the indicators show.

The SPX has violated the upper band so the middle band, also the 20-wk MA at 4250, is on the table as well as the lower band down at 3889. These targets can be further explained and discussed after the weekly chart tops out in the days and couple weeks ahead.

The orange circle shows a gap big enough to drive a truck through (it is mandatory to say this cliché when talking gaps). The bears would be smart to root for price moving up to 4620-4650 to fill that gap and button-up all loose ends above. This housekeeping would then allow price to fall in earnest going forward.

Keystone's 80/20 Rule says 8's lead to 2's on the way up so this is why the bulls wanted that close at 4582. It is only one day but 4580 opens the door to 4620 so the 4620-4630 target may be the top in a week or two. The 4578 opened the door to 4582. A move to 4588 would open the door to 4592.

The bullishness is off the charts. Bears are as rare as hen's teeth. Mike Wilson at Morgan Stanley, that has been bearish on the market this year, throws in the towel and joins the bull party. This is funny since he may have capitulated only a week or two before the top on the weekly basis. Goldman Sachs's David Kostin is a bull. Of course, permabulls such as Neil Dutta and Professor Jeremy Siegel say stocks will rally the remainder of the year. CNBC commentator Jim Cramer cheers the upside in stocks proclaiming that it is "too early for the new bull market to end." There are only bulls remaining on Wall Street. All these folks will be girding their loins in a week or two.

Investors, traders, analysts and commentators are obsessed with the Federal Reserve and Pope Powell's rate decisions and the inflation data. Minds are locked into the thinking that if the Fed raises rates, stocks will drop and the economy will fall into recession. Conversely, if the Fed is on hold with rates, a soft landing is achieved, and all is groovy with stocks going forward.

In reality, what is most likely going forward, is a credit crisis like March and more bank drama. Won't everyone be surprised when yields drop (investors and traders will be buying Treasuries for perceived safety so price up yield down) as stocks tank?

Let's weave a mosaic for the trading path ahead from the chart and time information above. The month of July probably ends down on Monday with weakness into Tuesday morning, then a lift in stocks from Tuesday into mid-week, then more down on the daily basis for a few days. The sogginess in stocks for the week ahead will then likely peter out as the week ends or the following week begins, and price should then rally for another high on the weekly basis (say, the week of 8/7/23) and at that time, all the chart indicators above should line up with negative divergence so the spankdown on the weekly basis would begin with many weeks of downside ahead. Simply watch the RSI and MACD above and you will know when to call the top on the weekly basis.

The Keybot the Quant algorithm remains long the market through the recent turmoil with the robot focused on utilities, copper and volatility as the key drivers of market direction currently. Keystone is holding index shorts that are underwater currently. It will be interesting to see when Keybot flips short going forward. 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 Tuesday Morning, 8/1/23, at 5:30 AM EST: The bulls keep flapping their gums. Bespoke's Paul Hickey proclaims that stocks will be higher from here into the end of the year. He is a two-handed analyst that then opines about multiple headwinds but proclaims that stocks will be higher than current levels one year from now. Oppenheimer's permabull John Stoltzfus, that did not predict the top in the stock market at the end of 2021, now decrees that stocks will run higher and hit 4900 this year. The future's so bright you have to wear shades. Timbuck 3.