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Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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SP500: A Storm is Coming

Monthly time frame:

  • There is a reasonable doubt If the bearish cross of the 10 m ma below the 20 m ma is going to have the same outcome like the 2000 - 2002 and 2007 - 2009 bear markets.
  • Even though the decline from the May 2015 high has unfolded a corrective pattern (3-wave down leg) which so far is suggesting a trading range that should lead to an extension of the rally from the 2009 low, nevertheless the sequence of lower lows/highs remains in force hence it should not preclude a significant correction first.
  • If SP 500 ends the month of May below the 10 m ma = 2013 odds should favor at least a Fibonacci retracement of the up leg from the February low (0.382 = 1996; 0.5 = 1961; 0.618 = 1925).
  • It is a difficult time to have a high conviction on the direction of the market however it seems probable at least a larger pullback

SPX Monthly Chart
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  • Monthly oscillators are exceedingly negative: The RSI on September 2014 has broken through the trend line from the 2009 low. Since then the trend has been down. The MACD has a bearish signal cross in force since February 2015.

SPX Monthly Momentum Chart
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Weekly time frame:

  • SP 500 ended the week with Shooting Star (Bulls have failed to break through the trend line from the July high) and a potential lower high. If next week S1 = 2039 does not hold then we would have the confirmation that the up leg from the February low is done. If this is the case, the favorable scenario for the Bulls would be a partial retracement followed by the resumption of the up trend.
  • Below 2039 we have the first support layer in the range 2025 (50 wma) - 2020 (Horizontal support) which I doubt it will hold. A "shallow" pullback would bottom at the 20 w ma = 1994. If this support also fails there is S3 = 1969 and S4 = 1947

SPX Weekly Chart
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  • Weekly oscillators are bullish however both the RSI and the Stochastic are rolling down. If the RSI loses the 50 line and the Stochastic breaches the 80 line the MACD, which is already slowing down could top

SPX Weekly Momentum Chart
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Daily time frame:

  • SP 500 is now below the 10, 20 and 50 dma (Bearish signal)
  • Price has carved out a potential Head and Shoulder with a measured target at 1965
  • If price breaks the neckline we shall see if the 200 dma holds (At least a potential bounce is probable)
  • If the Head and Shoulder plays out SP 500 must establish a bottom in the range 1965 - 1947 in order not to jeopardize the resumption of another up leg from the February low

SPX Daily Chart
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  • Daily oscillators are bearish and pointing down. The RSI (14) is below the 50 line. If the MACD breaches the 0 line odds should favor a larger decline

SPX Daily Momentum Chart
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  • In spite of a potential breakdown volatility remains subdued. VXX is below all the major moving averages and on Wednesday it established a new all time low. It is odd. Maybe VXX is carving out a Falling Wedge

VXX Daily Chart
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In the technical front: Breadth is worsening

  • NYSE Summation Index has a sell signal in force and it is rapidly rolling down. On Friday it has breached the April higher low and the 50 dma. The next buying signal should occur once the RSI drops inside the oversold zone; hence more weakness should be expected in the weeks ahead.

NYSE Summation Index Daily Chart
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  • The % of SP 500 Stocks Above the 50 dma is falling rapidly but with still room to the down side before entering the oversold zone

S&P 500 Stocks Above 50dma Chart

  • The McClellan Oscillator is negative and approaching the oversold line. A drop towards 90 ish could result in a tradable bottom

NYSE McClellan Oscillator daily Chart

 

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