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SP500: The Tug of War

The Tug of War

The distinctive and frustrating feature that stands out is that from the February high price has been trapped in a trading range. Bulls have tried but failed to sustain a breakout above the February high at 2120 twice (April peak and May peak), but it is also true that Bears have not been able to engender traction to the downside when SP500 has been vulnerable to suffer a breakdown.

During this time frame the 50 dma has been breached and reclaimed 8 times.

At the same time the sequence of higher highs / lows remains in force (The 100 dma has saved the bulls 10 times). In addition both the breakout and breakdown attempts have been engendered with correctives up/down legs suggesting the neither the Bulls nor the Bears have been able to maintain the upper hand.

Conclusion: Even though this pattern does not preclude a potential larger corrective price action, in my humble opinion a Major Top is not in place yet.

Therefore so far we should have a nil-nil score.

Next week we shall see if the current up leg will result in another breakout failure or if instead bulls are able to establish a higher low increasing the odds of follow-through on new highs.

SPX Daily Chart
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Monthly time frame:

  • From the February low the small range bodies with large upper and lower tails are suggesting that the dilemma of who is going to win remains unsolved.
  • With seven trading days left to end the month of June, so far we have an Inside candlestick, which is shaping a Doji
  • If bulls are able to achieve a new all time high the immediate resistance is located at the trend line that connects the February and May highs at 2140 ish
  • If bears break the sequence of higher lows the 10 mma = 2059 would be vulnerable to be breached opening the door to a multi-month retracement.

SPX Monthly Chart
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Weekly time frame:

  • In my opinion the major issues is if we can still consider as a valid scenario that SP500 from the October low is culminating an Ending Diagonal with the last wave up.
  • What seems probable is that since the 27 wma has held the selling pressure from the May high and SP500 has reclaimed the 10 wma with an engulfing candlestick, odds should favour more follow-throughs to the upside.
  • If this is the case above the May high the immediate resistance is located at the upper Bollinger Band = 2139 (Coinciding with the suggested trend line in the monthly time frame)

SPX Weekly Ending Diagonal Chart
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Daily time frame:

  • Since I don't see any alternative scenario I am going to give the benefit of the doubt that the Rising Wedge remains the frontrunner ending pattern.
  • If this is the case, Friday's Inside Day must be negated by establishing a higher low in the range 2105.60 (50 dma) - 2100.44 (Thursday's gap fill). A higher low would substantially increase the odds that the last wave (V) of the assumed Ending Diagonal is underway with a Zig Zag.
  • If the wave (V) is in progress it could top either at the trend line that connects the February and May highs at 2140ish or somewhere in between 2140ish and the black trend line of the assumed wedge (It would require a massive breadth thrust)

SPX Daily Chart 2
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60 minute time frame:

  • On Monday buyers stepped in to save SP500 from breaking down. The following rally, until Thursday, brought the index at a striking distance, 6.07 handles, from its all time high negating a potential reversal pattern.
  • The internal structure of the strong advance until Thursday's peak is once again corrective.
  • The pullback from Thursday's peak is so far shallow and overlapping.
  • The scenario of SP500 unfolding the last wave (V) of the assumed Ending Diagonal requires a Zig Zag up
  • We have seen many times solid advances to fail hence if this time is different, and the current pullback is a wave (B), SP500 MUST establish a higher low by finding a support in the range 2109.30 (200 hma) - 2099.55 (0.50 retracement) avoiding to close Wednesday's gap at 2100.44 (eod print)
  • Bulls should not waste the opportunity to fulfil a Double Bottom that has a measured target at 2158

SPX 60-Minute Chart
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In the technical front:

  • Daily Oscillators this time are poised for more followthrough: The MACD has a new bullish signal cross; The RSI displayed a positive divergence at the Monday's lod. Going forwards it must not breach the trend line support in force since the June 9 low. If this is the case it remains to be seen if it will breach the massive resistance at the 60 line

SPX daily Momentum Chart
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  • SP500 Advance-Decline line displays a solid improvement in the wake of last week rally. The absence of a negative divergence at the May high is a positive sign
  • Going into next week remaining above the 10 dma should maintain the favourable price action intact

SPX Advance/Decline Chart

  • The McClellan Oscillator barely closed above the zero line. Bulls cannot afford just one week wonder of breadth resurgence, hence falling back into negative territory would jeopardize the strong technical performance achieved during last week

NYSE McClellan oscillator Daily Chart

  • The NYSE TICK Cumulative has a bullish signal cross in force since the first week of June and has gained traction. This is a positive sign

NYSE Cumulative Tick Chart

  • The "event risk ratio" VIX:VXV is neutral, but I would rather see it drop towards the blue trend line rather than raise towards the red one

VIX versus VXV Daily Chart

  • NYSE TRIN is not an extreme but it is close of being oversold

TRIN Daily Chart

Conclusion: Since the February high price has been stuck in a trading range. Neither Bulls nor Bears have been able to gain the upperhand. This time daily Oscillators and Breadth Indicators are favouring a bullish resolution provided next week SP500 establishes a higher low above 2100. If this is the case odds would favour follow-through to new highs probably within the last wave of the Ending Diagonal scenario.

 

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