The Ying and the Yang of the S&P500

AD LINE

 

Its pretty hard to predict how deep the current correction may run for the S&P500. There are positives suggesting the bigger trend is intact, while there are negatives suggesting more near termed downside potential. Here are a few market indicators that I have been observing:

 

Positives – the Ying

  • Bullish trend still intact for S&P500 – higher highs and lows, key MA’s intact
  • Cumulative Breadth (A/D line – top chart) is intact–higher highs and lows, and above its 200 day MA. Note that the AD (black line) barely made a new high vs. the S&P 500’s (red line)  new high
  • Seasonality begins ramping up from mid-December through January
  • VIX is touching its trendline, and into its recent “high point” zone that typically signals a bottom, at least in the recent bull market (see chart below the S&P500 chart)
  • Cumulative moneyflow (bottom pane – chart below) is extremely healthy suggesting longer termed trend intact
  • Daily chart (not shown) near termed oscillators are oversold (RSI is 30, stochastics is at 7). However, no sign of hooking up yet.

S&P nearterm

 

vix short

 

Negatives – the Yang

  • MACD diverging (S&P 500 chart above)
  • Shorter termed momentum oscillators RSI and Stochastics hooking down (S&P 500 chart above)
  • Oil – a key market component – looks to be heading towards the $40’s
  • NYSE broad market index didn’t make new highs in conjunction with the concentrated S&P500 and Dow Industrial index new highs (chart below)
  • As I write this on Monday morning, we saw a higher opening followed by a very quick reversal to the negative on the US markets. Sellers continue to rule at this moment.

nya

All in, I think there might be a bit more downside left. The wildcard is oil, given its pressure on virtually everything recently (its no longer just hurting the energy stocks). A surprise jump in oil will change the game to the positive. That could happen–WTI crude is ridiculously oversold. Either way, it is my opinion that the above positive signs on the market suggest continued faith in the equity markets over the long term, despite the near termed negativity.

 

Keith on BNN

 

I’m on MarketCall this Friday December 19th at 6:00PM. Phone in with your questions on technical analysis during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for me) to [email protected]

Keith BNN

4 Comments

  • Hi Keith – always enjoy your comments and have come to respect your approach to TA. One thing I see on the S&P chart above is if you were to draw a line beneath the lows since July you’d have what is a major expanding top or megaphone top. It was a number of years ago that I first read about this type of pattern that was first identified by (I can’t remember who), it could have been Hirsch, quite a number of years ago. Is this pattern outdated – seems like we never hear of it anymore? When I googled it I only found a couple of articles, but one showed on the DJ also has a long gradually expanding top since 2000. It would interesting to hear your thoughts on that.

    Best Regards,
    Gerard Lalonde

    Reply
    • Gerald–thanks for the kind words
      While there has been a high, and a lower low–a megaphone (I prefer the term “Expanding pattern, or “Broadening pattern””–please read SmartBounce for more details) needs to have at least 2 touches of expanding highs and lows. The last expanding pattern I saw that worked was the one leading up to the tech bubble crash in 2000. I wrote my CMT 2nd exam in 1999 and part of the exam was to provide a detailed technical analysis on the market–I noted that formation at the time–and was right! But since then, I haven’t seen many, and they are not always predictive. The bigger the formation, the more accurate, I’ve found.

      Reply
    • Don’t be so sure–things are oversold, and as Bob Farrell (Merrill’s great technical analyst) once said–the three stages of a bear run are sharp downturn, reflexive rebound, then drawn out downturn. We have yet to see a reflexive rebound on oil, thus the broader markets.

      Reply

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