• 1 hour Bejing's Sway In South China Sea Is Fading
  • 17 hours Saudis Eye Billions As Stocks Get Emerging Market Boost
  • 20 hours Airbnb In Acquisition Mode Ahead Of IPO
  • 23 hours Gold Hangs At $1,300 Ahead Of Fed Meeting
  • 1 day Champagne Sales Slow As European Economic Worries Grow Louder
  • 2 days Putin Signs “Digital Iron Curtain” Into Law
  • 2 days Russian Metals Magnate Sues U.S. Over Sanctions
  • 2 days Tesla Looks To Jump Into Indian Market
  • 2 days Global Banks Lay Groundwork To Re-Inflate Asset Prices
  • 3 days Homeowners Experiment With Risky New Investment Trend
  • 3 days U.S. Tech Stocks Look Increasingly Vulnerable
  • 3 days De Beers To Expand World’s Most Profitable Diamond Mine
  • 3 days Ford CEO Gets Raise After Massive Layoff Round
  • 4 days Germany’s Flirtation With Recession Could Cripple The Global Economy
  • 4 days Where To Look As Gold Miners Inch Higher
  • 5 days Google Faces Billions In Fines From European Regulators
  • 5 days The Energy Industry Has A Millennial Problem
  • 6 days Russian Banks Scramble For Sanction Loopholes
  • 6 days Gold ETFs Take A Hit After Four-Month Run
  • 7 days European Union Takes Aim At Ten New Tax Havens
Lending: The Good, Bad, And Ugly

Lending: The Good, Bad, And Ugly

Aristotle said, “The most hated…

The Chatroom Cartel Running Global Bond Markets

The Chatroom Cartel Running Global Bond Markets

Eight major banks have been…

  1. Home
  2. Markets
  3. Other

SPX: The Jury is Still Out

The Jury is still out on whether the February rally is a countertrend move or something bullish

Breadth indicators are suggesting that the odds of another major down leg are now less likely. Although extreme readings are poised to lead to a market pullback, this kind of strength is unusual during a bear market. Hence odds should favor a higher low in the next pullback.

Although we should not completely rule out the event of another lower low, it occurs to me that we could have the following scenarios:

a) Bullish:

  • Sideways Double Zig Zag (Flat correction):

SPX Monthly Double Zig Zag Chart
Larger Image

  • Ending Diagonal:

SPX Monthly Ending Diagonal Chart
Larger Image

b) Bearish:

  • Triangle:

SPX Monthly Triangle Chart
Larger Image

  • Downward Double Zig Zag:

SPX Monthly Downward Double Zig Zag Chart
Larger Image

The suggested scenarios presuppose that the rally from the February low will unfold a Zig Zag (The following pullback will establish a higher low). The issue is where the current up leg could top.

Given the extreme overbought readings price should be close to a s/t top

  • In the weekly time frame we have two potential reversal areas the:
  • T1: Range 2033 - 2044 (50 wma - January gap down). The January gap coincides with the 0.786 retracement of the decline from the November lower high
  • T2: Trend line that connects the November - December 2015 lower highs = 2055 ish

SPX Weekly Chart
Larger Image

  • In the daily time frame it seems more likely a pause in the range of the T1. In this target box we have the upper Bollinger Band, the January gap down and the 0.786 retracement.

However Friday's Marubozu, which achieved an eod print above the 200 dma may be a warning of buying exhaustion. Usually a small range body follows a Marubozu. Same pattern that established a short-term top on February 2.

SPX Daily Chart
Larger Image

In the technical front I have to emphasis the bullish signals that make unlikely a major downturn from here.

  • New Bullish cross of the weekly MACD with the RSI reclaiming the 50 line

SPX Weekly Momentum Chart
Larger Image

  • New All Time High of the SP 500 Advance - Decline Line:

SPX Advance-Decline Line Chart

However, although a breadth thrust is bullish for the equity market, an extreme reading is a double-edged sward since it is not sustainable forever. Instead it increases the odds of a pullback. In this respect the McClellan Oscillator, which last week printed the highest reading since the 2009 low on Friday it displayed a negative divergence suggesting that buying momentum may start to subside.

NYSE McClellan Oscillator Daily Chart

 

Back to homepage

Leave a comment

Leave a comment