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SPX: The Risk of a Breakdown Remains Elevated

Monthly time frame:

  • SP 500 (SPX) achieved a new ATH ending the month with a Spinning Top, however the real body of the candlestick can be considered as a neutral Inside Month. This is a sign of indecision and probably distribution
  • We can use the 10-month moving average as the pivot support (It stands at 2048). A monthly close below this moving average will be a signal of a potential trend reversal.
  • Below the 10mma we have three "macro" support levels:
    • February/December lows and trend line from the October 2011 low = 1980 - 1972
    • October 2014 low = 1821
    • The area of the 2007/2000 highs and the 0.382 retracement of the entire advance from the March 2009 low= 1576-1553

SPX Monthly Chart
Larger Image


Daily time frame:

  • For several weeks I have been suggesting that given the bearish signals of monthly and weekly momentum oscillators and the overlapping internal structure of the pattern unfolded since the December high odds should be favoring that price is forming a terminal pattern (Ending Diagonal).
  • If the terminal pattern pans out the consequences are unforeseeable. Probably the 200 dma will be breached and price will have initially two support layers that could be probed: 1980 and 1820

SPX Daily Chart
Larger Image

Two troublesome bearish evidences occurred last week:

  • The daily MACD has a new bearish cross joining the bearish signal cross of the Stochastic triggered on April 6

SPX Daily Momentum Chart
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  • The NYSE Summation Index has triggered a new sell signal by crossing its 10 dma

NYSE Summation Index Chart

In addition during this overlapping rally attempt the percentage of SP 500 stocks that are trading above the 50 dma is shrinking. While SPX is attempting to establish higher highs less stocks are participating. This is a sign of weakness.

Stocks Above 50-Day Moving Average Chart

The McClellan Oscillators is also providing evidence of impending danger:

  • During the advance from the March low SP500 has a sequence of higher lows/highs while the Oscillator has a sequence of lower highs/lows (Negative Divergence)
  • During the week the Oscillator has collapsed to a negative reading below -40 suggesting that declining issues are dominating.
  • As long as the McClellan Oscillator remains below the zero line SP 500 remains vulnerable.

NYSE McClellan Oscillator Chart


The Terminal Pattern:

  • We can consider that a Rising Wedge began from the October low.
  • The last wave (V) could be already in place or if Friday's lod holds there could be an attempt to establish another ATH. Given the weakness of Breadth and momentum indicators I seriously doubt that price will be able to reach the upper trend line of the assumed Ending Diagonal
  • If this Ending Diagonal pans out the following move to the downside will be sharp and could retrace back to the level where it began (October low = 1820)

SPX Ending Diagonal Chart
Larger Image

 

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