Monthly time frame:
- The sell signal triggered by the bearish cross of the 10 mma below the 20 mma, so far, it has not ignited a new bearish cycle like the ones occurred during 2000-2002 and 2007-2009.
- Instead of a downward move this time it looks more likely that price is unfolding a consolidation phase. If this is the case, although in my humble opinion SP 500 is involved in a topping process, the rally from the 2009 is not over yet.
- SP 500 has reclaimed both moving averages and it is now in the upper range, however if next month the 10 mma = 2021 is breached, buying exhaustion could open the door to a retracement of the up leg from the February low
- SP 500 has ended the month of April with a Doji. It can be an exhaustion candlestick (Same candlestick as in November 2015). Hence a retracement of the up leg from the February low is probable.
- If a short-term top is in place we have two support zones where the potential pullback should bottom establishing a higher low: S1 = 2036 - 2021 and S2 = 1993 - 1963
Breadth is arguing for more upside:
- The SPX Advance-Decline line reached a new all time high last week. It would be extraordinary unusual that without a negative divergence SP 500 would not also achieve new all time high
- If the scenario of a retracement with a higher low is correct the Advance-Decline line should not breach the 50 dma
Weekly time frame:
- After 10 consecutive weekly higher lows last week SP 500 has interrupted the extraordinary bullish streak by breaching the support located at 2073
- If as it seems probable a pullback is underway the broken support should not be reclaimed.
- The next support S 2 = 2040 then we have the 50 wma = 2028 and S 3 = 2020 ( Which coincides in the monthly time frame with the 10 mma)
- Below S 3 there is probably a pocket of air until the 20 wma = 1992 (Upper range of the S 2 in the monthly time frame)
- Therefore provided SP500 remains below the broken support located at 2073 odds should favor a pullback with a target in the range 2040 - 1992 (probably in the middle-lower range = 2020-1992)
Daily time frame:
- Since price has breached the trend line support and for the first time since the February low and it has lost the 20 dma it is probable that the up leg from the February low is done
- Friday's Hammer is suggesting probable a rebound attempt next Monday
- If price reclaims the 20 dma and closes Friday's gap down, provided the 10 dma = 2090 is not reclaimed then it could be forming the right shoulder of a slanted Head and Shoulder reversal pattern which has a measured target at the gap fill = 1989
- If bulls reclaim the 10 dma the bearish scenario will most likely be aborted
- Daily oscillators: The negative divergence of both the RSI and the MACD has triggered a sell signal (The RSI has breached the trend line support and the MACD has a new bearish signal cross)
If the scenario of a higher low plays out in my opinion SP 500 could be carving out an Ending Diagonal, which would conclude the rally from the 2009 low
In the technical front:
- The SP 500 % of stocks above the 50 dma after reaching an all time high at the end of March has rolled down. Now it is no longer overbought but there is plenty of room to the downside before it becomes oversold.
- The NYSE Summation Index has reached the highest reading since January 2012 however with negative divergence of the RSI and the MACD. So far it has not triggered a sell signal yet (By crossing the 10 dma ). If it does we shall see if the April low holds
- The McClellan Oscillator has clearly diverged from SP 500 during its last push up raising a yellow flag (Potential short-term top). As long as it remains below the zero line a bearish scenario is likely
Lastly I suggest monitoring Gold, which has broken out of a Triangle. This continuation pattern has a measured target at 1355.
Probably as long as Gold does not conclude this thrust we should expect weakness in the equity market.
I provide Technical and Elliott Wave analysis of different asset classes: Stocks, Equity Indices, Fixed Income, Currencies and Commodities at the website: http://www.thewavetrading.com/