• 15 hours Is Tech Billionaire Peter Thiel Done With Trump?
  • 21 hours Musk Takes To Twitter To Troll The SEC
  • 2 days Lunar Mining May Commence As Early As 2025
  • 3 days Immigration Will Go Bust Without $1.2B Bailout
  • 3 days The Economics Of The Space Race
  • 4 days Why The World's Central Banks Aren't Yet Sold On Renewables
  • 5 days How Much More Cash Can Uber Burn?
  • 5 days Inside The Biggest Counterfeit Gold Scandal In Recent History
  • 5 days EU-U.S. Trade Relations Are Deteriorating
  • 6 days Over 184 Companies Have Bailed On Facebook
  • 6 days BP Sells Petrochemical Business For $5 Billion
  • 6 days U.S. Moves To Secure Domestic Rare Earth Supply
  • 7 days E-Commerce Explodes As Boomers Go Digital
  • 7 days Major U.S. Cities Are Turning To Renewables
  • 8 days Economic Reopening Backfires, COVID Surge Snaps Recovery
  • 8 days How Are Low Car Sales Impacting The Metals Market?
  • 9 days Are Gold Stocks Still Undervalued?
  • 9 days Singapore's $3 Billion Oil Trading Scandal
  • 10 days Luxury Clothing Isn’t A Priority As Americans Grapple With COVID-19
  • 10 days Natural Gas Demand Hits 25-Year Low
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

TheWaveTrading

TheWaveTrading

TheWaveTrading

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on…

Contact Author

  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