A sharp pullback in the first half of the week, forced the S&P 500 market 34 points lower. However, this was not enough to threaten the overall bullish trend, as Wednesday’s intra-day recovery kept the bullish price channel from August intact.
Thereafter, positive tech related earnings lifted the markets to new highs, on above average Volume, reflecting the big boys joined the party. But the broader market is not as strong as it seems, as the daily NYSE Summation Index trend indicator is firmly holding on to it’s bearish mode, despite this price pop to new highs.
This bearish divergence situation and the fact that Volatility is once again facing the long standing support area early next week, could make the upside potential limited for this market, with a test of channel resistance as a likely maximum level, before once again heading lower.
Channel resistance also roughly represents the +2/8th MML (Murrey Math Line) at 2625, which must hold to not prove me wrong on the earlier discussed ‘throwover’ scenario and if broken… instead open up for even higher stock prices, before a long term top can be expected.
The Bond market, using the TLT weekly as a proxy, fell below the recent pivot closing low this week, which could open up for even more weakness, with important trendline support down around 120 as a next likely target.
The opposite outcome of a falling Bond market is higher interest rates, which is another factor that could put pressure on the stock market soon.
The S&P 100 BPI (Bullish Percent Index) daily Sentiment chart
The Neural Net System is Short on the S&P 100 weekly
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The S&P 500 made a brief pullback towards trendline & channel support, after breaking out from a Rising Wedge pattern. Friday’s (exhaustion?) gap higher, on above average Volume, came on positive tax cut news. The high for the day made an exact hit to the monthly L3 DGL (Dynamic Gann Level), which is on the ‘watch’ list of likely targets, long term.
The market is getting quite overbought near term and the daily NYSE Summation Index trend indicator is holding on to it’s bearish mode from Tuesday, despite Friday’s gap higher.
Even the mid term Neural Nets turned short on the OEX weekly. This bearish signal came after a 53 point move higher, from the last Long signal on Sept. 01.
Because of Friday’s close near the high, i’m looking for some more intraday action to the upside or even a test of channel resistance, before a pullback is likely starting. Despite of this potential pullback, the overall positive trend from the August low is viewed as intact, as long as it continues to oscillate higher, within the price channel.
Any clear breakout from it (daily closing basis) would be a harder technical signal of a change in the trend.
As better seen on the S&P 500 hourly chart, a Rising Wedge pattern is likely in it’s ending stages, with the high for the week coming closer to the +1/8th MML target (2562.5) mentioned in previous updates.
In Elliott Wave terms, this pattern is called an ‘Ending Diagonal’ and is bearish once it has reached it’s termination point. Any break below the lower wedge line would confirm a completed pattern.
A minimum downside potential should then be channel support, the level depends on when this support zone is reached. If it fails to hold, it could open up for even more weakness, short term.
This bearish stance is supported by a RSI divergence observed on the hourly chart and also daily Volatility once again falling to it’s long standing support area, early next week.
The S&P 500 is pushing higher on below average Volume, (partly short covering?) in what could be a wave c or 5 underway from the August low, Thursday’s high came up against short term channel resistance, 10 points from the + 1/8th MML area mentioned in the previous update.
With this in mind, a pullback is likely the next market event, with strong support (see daily chart) coming in from several trendlines it broke through earlier in the week. The lowest one also roughly represents channel support. So if this zone holds, the overall bullish trend could continue, ideally towards the 1/8th MML area at 2562, before the market is peaking, mid term.
If it fails to hold, it could mean the trend is changing right away, short & mid term.
The reasoning behind this view, is this week’s OEX close up against an even larger weekly trendline (coming up from 2015) and with weekly momentum at the same time in an overbought extreme and also with Volatility reversing higher from a long standing support zone.
Increased evidence of a mid term peaking market, would be a weekly Stochastic bearish crossover and the daily NYSE Summation Index trend indicator turning bearish. It has been in a firm uptrend since late August and despite some price noise on the way up, it has shown the true trend very well.
So once the market turns bearish, a natural first price target zone to look for would be trendline support, down around 1080 – 1100 for the OEX. Any clear weekly close below it, could open up for even more weakness, towards the next lower weekly trendline.