Last week we observed the extremely low CPCE and VIX readings; suggesting a top was eminent.** Indeed the market lost some steam, but mainly with several drop and pop ~20p pullback days resulting in the S&P500 still closing the week almost at 2100. Key word here is “almost”. Why? As SPX2100 still remains insurmountable resistance. The weekly TI line-chart below shows this clearly. We use a line chart as it reduces the daily and even weekly intra-noise (closing price only).
We can observe that price is still –after almost 2 years- unable to move decisively above the SPX2000-2100 zone. The weekly TIs keep pointing up, but the RSI5 is showing signs of negative divergence, and so does the Money Flow Index (MFI). A red week next week will confirm both setups (divergence is only divergence till it isn’t, hence the red dotted lines). Our proprietary A.I. buy/sell indicator is still on a buy since last week, but it was not ideal hence the green dotted up arrow and it could therefore be followed by an ideal sell signal instead in the coming weeks.
We also note that although price is above the 20w, 50w, 100w and 150w SMA, the 20w is below the 50w, which in turn is below the 100w (red arrow). If we compare their current relative positions to how these SMAs were stacked until mid-2015: price>20w>50w>100w>150w, which is full-blown bullish, we must conclude albeit the 20w is moving back up, the SMAs are not bullishly stacked. Based on the observable evidence in this chart, we cannot proclaim a new bull is underway. We’ve discussed this in length with our premium members (TRIAL MEMBERSHIP NOW AT $2.99/MONTH FOR 2 MONTHS!) in our updates, but we feel it warrants repeating. We would like to see a breakout and close above the 2100 level (on good volume), and the market start making new ATHs, bullishly stacked SMAs, etc. None of this has happened in at least 12 months. Hence, we are neutral on the S&P500 until one or the other is proven.
If we move on to the DOW, weekly candle stick chart shown, we can observe price once again stuck in the $17,500-$18,000 price range; now for almost 3 months. In the meantime volume has been decreasing, and the MACD appears to be stalling (blue circle). IF next week ends red, the MACD will start to point down, the FTSO will continue its sell signal from late April and the current tentative A.I. buy signal will turn in to a sell. All of which is not bullish.
Hence, next week will be key for the weekly chart. Bottom line: a break and close above $18,000 will be bullish and keep TIs pointing up. A break below $17,500 bearish and turn the TIs south.
On the NYA price is back at “the scene of the crime”: $10,500 which coincides with the 62% retrace of the entire prior decline. Clearly the NYA is still some ways below its ATH,. Yes, it did break above the descending trend channel, but the 20w<50w, 100w and 200w SMA; and the 50w<100w. Not a bullish set up (compare with 2014, for example). Hence why we cannot proclaim a new bull has started and neither proclaim a full blown bear is underway. Also here we are neutral: this market needs to proof itself in either way, and the parameters set for the DOW above will be a good guide.
We showed our premium members last week the NAZ broke back then above the upper blue and purple descending trend lines, as well as the important $4900 level, red dotted horizontal line, and was able to stay above these trendlines this week. That’s a good sign. Also here tentative negative divergences on the RSI5 and MACD-histogram (red dotted lines), but which need to be confirmed with a down week next week (again; divergence is only divergence till it isn’t so we don’t hang our hat on it). Hence, the upper black trend line could remain price’s target, now at $5075. That’s potentially 2.6% upside. A close below $4900 is bearish.
But, please note that price is still in the long term black downtrend channel, and therefore hasn’t proven anything bullish yet. That would be a break out above the black trend channel and new ATHs. As such betting on the bullish horse is in our opinion not at all a sure bet yet long term.
Bottom line: these four charts of the USA’s most important markets tell us that longer term they need to proof themselves either for the bullish or bearish case. IF and once they do in either way there will be plenty of time to jump on the bandwagon and ride the right side of the trade. Until then; trade safe and don’t get too hung up on .
As you notice, Intelligent Investing tracks many lines of evidence to determine the market’s next big move, Elliot Wave, S/R, TIs and TAs are several of them. Holistic objective analysis allows us to be on the right side of the market more often than not, without any preconceived notion or opinion. We use just the facts. Just like we did here! Do you want to be on the right side too? Of course! Then please join us here.
**The CPCE and VIX continued the past week in the low range and traders thus keep mostly betting on continued upside. From a contrarian perspective the opposite often tends to happen.