Today I am initiating a new video summary that is embedded in the blog. I hope to have a video add-on to this blog about once a week. Over time, I am sure the videos will evolve – for now, I will touch on a single chart and try to add a bit of colour through the video.
The S&P is forming a right-angled triangle on the daily chart. Triangles can be transitional (i.e. leading into a trend change) or continuation patterns. The only way of identifying whether the pattern will lead into a trend change or a continuation of a trend is to watch for a breakout. A breakout to the upside, which in the S&P’s case will be through 2120, would be bullish. A breakout below around 2080 (which coincides with the 50day MA at around that level) would be bearish. Its hovering around that level as of Wednesdays close (the video’s chart is a day shy of the above chart). In either case, you should adhere to my “3 day rule” (per my book Sideways). That is, wait 3 days or more to determine if a break is real, or a head-fake. Rising volume would be ideal on such a break as confirmation of the breakout – but it’s not absolutely essential.
The current chart shows us that money continues to flow positively into the S&P500- via the rising Accumulation/ Distribution cumulative line at the bottom of the chart. Shorter termed momentum oscillators RSI and Stochastics are meandering – providing no clues to future direction. However, MACD is diverging. MACD diverged against the uptrend in late 2014, and that lead into a fair amount of downward-biased chop.
The bottom line at this juncture is to watch for which way the triangle breaks. That will provide us with the market’s near termed outlook.