Comparing the daily & weekly S&P500 charts

S&p LONG

The two charts above & below show mostly bullish pictures, but there are a few items of caution. First, let’s look at the weekly chart (above), which gives us an intermediate termed (next few months) view.

  • BULLISH: The trend is up (no trend line marked, but it’s obvious). Higher highs and lows, all that good stuff.
  • BULLISH: Stochastics and RSI are hooking up. As mentioned in the past, they are my preferred quicker momentum studies.
  • QUESTIONABLE: Volume had been fine until the most recent bar, which represents the week so far. Volume is looking half-hearted. Note that one weekly bar is not overly important –it’s a series of low volume we must watch for.
  •  BEARISH: MACD, which is a lagging momentum study, is trending down. It hasn’t begun to round up—the MACD bars (blue bars, second pane from the bottom) are flat at best.
  • BULLISH: Moneyflow, as illustrated by the Accumulation/Distribution line, is trending up.

So—MACD is something we should watch. Because it’s a lagging indicator, it tends to move you into the market slower than the other two momentum indicators.  This lag can make you anxious, and make you feel you are missing out. But it’s prudent to hold just a little back until it crosses up. Overall though, the picture is bullish on the intermediate termed chart.

S&P nearterm

The other chart shown is the daily chart (above). This gives us the near termed (coming days and weeks) picture.

  • BULLISH: Here I’ve drawn a trend channel. I drew this line some time ago, and it’s been amazing how precisely the market bounced off of the support line.
  • BULLISH: RSI & Stochastics hooked up from an oversold level and signalled the current rally nicely.
  • BULLISH: MACD on the daily chart has hooked up.
  • BULLISH: Moneyflow continues to trend higher on the daily chart.
  • BEARISH: Volume has had a surprising decline during the past few days of upside. The saviour here is that the upside moved so quickly, it still moved the Accumulation/Distribution moneyflow line up – despite the lousy volume. Nonetheless, I have to give volume a thumbs-down mark for lack of participation.

 

Overall, the near termed picture is bullish, with volume being the only concern. Volume has declined in past post-pullback rallies, as you will note on the daily chart. It may not be a big concern. Investors should remain mostly invested, based on the 2 charts presented above. We hold a little cash, but remain largely invested in our equity model.

9 Comments

  • Thanks for the insight Keith. The charts look good (for the most part) and we are still in the seasonably favourable period. Do you still expect a larger correction in Q2 or Q3 and would you assume the correction would be less severe for the tsx?

    Reply
    • Hi Eric
      Yes, I think there is a high probability for a correction in Q2 or Q3. As mentioned on my blog entitled “Cyclical correction possible for 2014”, there are a few factors suggesting this- nothing has changed. That being said, nothing is etched in stone–I’m just assuming a higher probability for a correction. Either way, as a disciple of the seasonality trade, I will raise cash to some degree in a couple of months

      Reply
  • Hi Keith,

    Love your analysis on the S&P 500 charts! Next week, can you do the same for the TSX? Would love to get your insight on the CDN market.

    Thanks,
    Daniel

    Reply
  • Keith, you made a great call on oil a while back- what do you expect now, I think this is its strong season?

    Reply
  • Hi Keith- Quick question on preferreds. Many Canadian Lifecos and big US banks all have preferreds callable between 2015-2018 trading currently around $$21-$22– $3+ discount to par. They have corrected down from $26 last spring. If you believe that interest rates will stay low for many years- I do because if they go up, governments will be extremely challenged to pay off their debt– these seem like a good deal. A 6% yield with a potential 10-18% capital gain IF ever called. Your opinion?

    Reply
    • agreed–we hold 20% exposure to preferred shares in our fixed income model we run for clients.

      Reply
  • Keith, do you think commodities will continue their uptrend for a few months? A seasonality expert (who I m sure you know) had silver and oil as top picks on bnn last week.

    Reply
    • Commodities look good right now, except copper–oil is seasonally good now ’til spring.

      Reply

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