Let’s take a look at the SPX daily chart with a host of my “go-to” indicators. Hopefully we will get an idea of how to interpret the current market moves. Rather than wax eloquently – I’ll list my observations in point form, and then offer my own conclusion to these observations.
- After breaking the 2.5 year trend channel in mid-2018, the S&P 500 found very significant technical resistance at 2800 through most of 2018. It hit 2800-ish 7 times (!) since January 2018, including last week’s test
- While it did break 2800 in October of 2018 to reach just over 2900, this breakthrough didn’t last long.
- The SPX is now hovering near 2800 – having stay above it for a few days last week. Start counting 3 days if it stays below 2800 – so far, it’s right on the doorstep.
- The SPX is holding above the 200 day SMA so far.
- Diverging moneyflow momentum (top indicator) has been a pretty good clue to short termed market highs that are about to give some back. We were experiencing this over the past few weeks – which is why I noted that the market was a bit overbought when I was on BNN recently. This isn’t a long termed negative, but it’s indicative of a pullback—so far, it’s been right.
- MACD (longer termed momentum indicator) and Stochastics (shorter termed momentum indicator) are diverging negatively from an overbought position. However, mid-termed momentum indicator RSI was not overly overbought before it began rolling over. Thus, this may suggest a typical correction, rather than a significant move.
- Cumulative moneyflow (bottom indicator) is bullish.
Indications are for a neartermed pullback. Perhaps we saw the action on Friday and that was that. Or not… there may be more to come. As you can see, there are enough mixed messages (positives like 2800 holding and cumulative moneyflow trend – vs negatives on the shorter termed indicators). We’re still at 24% cash, and looking for individual plays rather than making any bold assertions of this market. Put a gun to my head and ask me for my outlook…I’ll guess we are in a consolidation pattern that began in January of 2018, and that pattern may have more up/down swings before it breaks to new highs. I think this is a thinking person’s market right now. Those who take a broad index buy/hold strategy may make less money in this market than those who look for rotation and opportunity in overlooked securities.