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.
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.
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
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