The market has turned... Until when?
Updated
BULLISH, OVERBOUGHT BACKDROP
The SPX remains in a bullish medium/long term configuration. However, it technically continues to look overbought on most time frames, and will have to work out this condition if it is to continue upwards. A correction has been widely expected, but has not properly materialized for now.
VISBILE TERM TURNING NEGATIVE
since Wed March 1st, exactly one week ago, the daily time frame has started showing multiple signs of a potential correction:
- Formed bearish Harami on March 1st and 2nd
- Harami formed exactly at the top of the BB (2,400.98)
- This level also corresponds to the critical 2,400 resistance
- Index broke the 2,400 level intraday but failed to close above it
- Index never revisited that level (for now)
- Most technical indicators have turned negative in a coordinated way since March 1st
WHERE TO NOW?
Caution required, as this could be the start of a correction. Break and close above 2,400 would mark a resumption of the uptrend. Key index levels as follows (rounded for better legibility):
2400 (+1.33%)
2350 (-0.77%)
2305 (-2.67%)
2275 (-3.94%)
2242 (-5.34%)
2190 (-7.53%)
The SPX remains in a bullish medium/long term configuration. However, it technically continues to look overbought on most time frames, and will have to work out this condition if it is to continue upwards. A correction has been widely expected, but has not properly materialized for now.
VISBILE TERM TURNING NEGATIVE
since Wed March 1st, exactly one week ago, the daily time frame has started showing multiple signs of a potential correction:
- Formed bearish Harami on March 1st and 2nd
- Harami formed exactly at the top of the BB (2,400.98)
- This level also corresponds to the critical 2,400 resistance
- Index broke the 2,400 level intraday but failed to close above it
- Index never revisited that level (for now)
- Most technical indicators have turned negative in a coordinated way since March 1st
WHERE TO NOW?
Caution required, as this could be the start of a correction. Break and close above 2,400 would mark a resumption of the uptrend. Key index levels as follows (rounded for better legibility):
2400 (+1.33%)
2350 (-0.77%)
2305 (-2.67%)
2275 (-3.94%)
2242 (-5.34%)
2190 (-7.53%)
Note
Impressive rebound yesterday on the back of the dovish Fed. This confirms the strength of the up-trend we are currently in. Further strength if we close above 2400 - Less than +1% away. Meanwhile, the SPX is back towards the top of the Bollinger Bands and is approaching overbought levels (RSI = 66).Note
The negative short-term momentum initiated and highlighted two weeks ago (see above) was confirmed yesterday: 1/ The S&P broke its 20MA to the downside; 2/ At -1.24% the drawdown was of large, irregular amplitude; 3/ The move was coordinated (main index/Russell/USD down, volatility/oil/gold up). At this juncture, the certainty is that we are now in the much awaited corrective phase of the market. The uncertainty is how much correction we will get and for how long. While we are still in a long term uptrend, re-capturing that trend in the short-term will require re-capturing the 2350 / 2390 / 2400 levels. The name of the game is to protect positions against further weakness from here.Note
Please pay particular attention to the Russell 2000, which showed signs of weakness during the most recent upside phase of the market, and which is now breaking down twice harder than the market (-2.71% yesterday). This lack of breadth is generally a precursor to future market weakness.Note
SPX Still in corrective, descending short-term configuration. Yesterday's Doji candlestick spells indecision, unsurprising in the context of the delayed US healthcare bill vote. The longer-term, weekly chart is still up-trending but technical indicators have started to turn. Caution still required in this context.Note
The index rebounded nicely yesterday off its MA50. However, it remains in a corrective phase and below its MA20, while the overall and longer-term trend is still up. The SPX needs to claim back the 2375 and 2400 levels to resume its uptrend. Upcoming earnings might help to determine future index direction. In the meantime, caution is still required.Note
The SPX remains long-term bullish and short term bearish, as I wrote about one month ago on March 8. Yesterday was a particularly interesting trading session as the day started in a bullish manner and ended in negative territory (a rare occurrence these days) after the release of the Fed minutes. Indication of balance sheet size reduction from the Fed signals a potential acceleration in interest rate pickup - The single biggest threat to the bull trend, as we have highlighted previously. As a result, the outside reversal occurring at the 2,375 resistance is quite bearish (bearish engulfing pattern), and anchored in a fundamental catalyst (interest rates). The uptrend is under threat, at least in the shorter time frame, and caution is still required - More than ever.Note
Market down, volatility/Gold/USD/Oil up --> More caution required ahead of earnings which are expected up by double-digits. Focus on single-stock ideas with earnings catalysts before/after publication.Note
Yesterday's pop could be a dead cat bounce. The S&P is still in a short-term downtrend. Late last week was key, as we saw the index break and close twice below the MA50. We still need to break 2,375 on the upside to potentially resume the uptrend. On the downside, we are very close to the next levels 2,325 and 2,300. Caution continues to be warranted here.Trade closed: stop reached
Yesterday's breakout above 2,400 invalidates (for now) the downtrend initiated in very early March. The close above 2,400 is the main breakout indicator, but this took place in unimpressive volume, and will therefore require further confirmation. Stopping this thread as we move into a new market phase.
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