We’re at the top! It’s time for a reversal…. ok, maybe not. Just thought I would get you excited. However, I think it’s coming soon based on a few simple chart reads. Of course, there are tons of out-of-our-control variables that will move the market wherever it wants to go: earnings, POMO, mid-term elections, etc. My purpose here is to offer another perspective and something to think about so you can better manage your risk and not get caught with your pants down…
Let’s check out the SPX daily: click to enlarge chart.. you’ll need a big ‘ol view of it.
click to enlarge
- Fibonnaci Retracement – We pushed through Fib Retracement 23.6% on Wednesday, then pulled back to it today – it’s acting like a magnet.. for now. Notice the same thing happened on the far left of the chart at 38.2%, then again at 50% twice over the last few months. We even saw struggles and reversals at the 61.8% in mid July and mid September on a leg down. If you look at the weekly, you’ll see a very strong 38.2% retracement resistance level just above the April 26th highs. So, based on that , the 1225 range is major resistance – but we have a long way to go before we get there (could happen). The weekly 50% retracement puts us around 1120. So, there are two/maybe 3 scenarios that could play out based on the Fibs….
- We continue leg up to 1120 range and then test major resistance.
- We fail here at 23.6% and look for next fib at 1120 (happens to also be the SMA200 area).
- We fail here and try to hag out again at the 38.2% level just like we did a few weeks ago.. That would take us down to about 1140.
- Stochastics RSI 14 – Do we have a warning sign here? I highlighted the areas (vertical bars) where the Sto RSI14 broke south of the MA5 during an uptrend. Notice that during the big run during Feb – April, these moves only represented blips in an uptrend (SMA10 held). However, it also market significant reversals as confirmed by SMA10/5 negative cross. The take away here for me is to watch for Sto RSI 14 to cross below MA5. This is a warning sign. This is not an indication to go in heavy to the long side. Look for SMA5 and SMA10 relationships to confirm along with other overlays. In this example, SMA5 is still healthy and showing uptrend – so this is somewhat of a Sto RSI 14 bearish divergence to watch. Could only be a one day blip like we saw earlier in the year.
- RSI 14 – Bearish Divergence. The peak on Wednesday is lower than the peak last month. We’re making lower lows and lower highs. It’s not a strong divergence, but again, shows some possible weakness in this move.
- MACD – ticked down today.. Again, this could just be a one day thing or a possible warning sign.
You can see why I’m heavily in cash this evenings – there are a lot of ‘maybes’ in this move right now. Don’t forget, the volume was also high today implying some distribution… often associated with the end of a rally. If I had to put it on a scale, tonight I am 60/40 bearish based on SPX. Note – oddly enough, the GLD chart does not look over bought to me right now even though the move has been out of this world. When it comes right down to it, the market will have to see a stronger dollar and maybe a few bad earnings tossed in there, to reverse course.
Stay nimble and see you in the Bullson.ws trading room.
