Friday did close as a large SOS day. The System Score is 36 which is bearish. Normally, after a consolidation like we've had for 2-3 weeks, the technicals would be bullish. However, in this case, prior to the early-March Dow high, there was pretty much another 3 weeks of consolidation in the 1840-1880 zone. So, that has allowed many key daily moving averages to cluster in the same price zone. Uptrends are safest to join after retracements/consolidations when key moving averages are primarily aligned upward and below price. SPX can still recover and take off in a wave 3 like Tony Caldaro favors, but it would ideally need another 1-3 days of small consolidation/drop to reset technicals without losing much price so that a pop can break key moving averages and be sustained by oversold conditions.
Of course, bears need to solidly break 1840 which preferably means a close below the 50dSMA at 1834. The smallest drop induced by my consumer discretionary spending indicator was about 5% but almost all have been 8%+. An 8%+ drop would retest the 1738 low and 1740ish support. A 5% drop would retest a good support zone at 1780-1800. Although I still favor the retest of 1738, we should be prepared for a solid bounce from 1780-1800 in the interim. Let me explain some reasons. Buy-the-dip mentality is still well-entrenched and won't die fast as you've seen for months and years now. Downtrends have been getting smaller as the bull market winds down. But, perhaps most importantly we have the factors of time and back-to-back spending signals that are concluding. Using the early March Dow top, next week is the 5th calendar week covered by the downtrend. So, the historical minimum time frame for my spending signals will have been met with any new low next week. And, Scenario 2 that I laid out weeks ago based on the back-to-back signals was an early March top, early April bottom and mid-April top. So, a 5% SPX drop to 1800ish followed by a 1-2 week rally that pierces key moving averages from below before collapsing to 1740ish or better yet 1680ish is STILL a viable option. It's getting difficult to fathom a test of 1740 this coming week, but Scenario 1 also remains an option with a mid-March top (SPX has done so) and mid-April bottom in which case 1740 is still viable in mid-April. Since I am also expecting a significant 8%+ SPX bottom in late summer, it still seems likely that the old 1576 high will be retested regardless of whether Scenario 1 or 2 plays out in the next few weeks. And, all this assumes SPX breaks 1840. We have to be smart and give up our plans if SPX breaks a key level (I'm using 1876 now but will lower to 1866 and below soon). Good fortune.
Does the massive positive divergence on all the 60 minute charts bother you here with your prediction for Monday? It is quite massive and would be a shock if it didn't play out with a strong 1-2 day move higher.
ReplyDeleteJack, I'm always bothered by something. I do give some weight to divergences on my technical indicators but divergences on price are not factored into my Score. SPX divergences can disappear or have little effect until the 2nd or 3rd divergence so I never found much trade value in them but they are a common precursor to trend changes. My projections could easily be wrong, but that's what stops are for. I'm using 1876 currently but will lower that to 1866 and below soon.
ReplyDeleteLove your work. You surely could be correct. My work shows the froth stocks deeply oversold wthi major divergences abounding well below the 0 line on all oscillators. This usually, but of course not always, leads to a rally. Sentiment is poor, Weekly divergences are bearish so we should break but this buy the weakness mentality is alive and well for a while longer I believe. We should go lower but my gut says we're up Monday based on those Macd's. Thanks for all you do.
ReplyDeleteNow the question becomes does it hold or not. My guess is it does. I was foolish. I went cash end of day Friday. Fear the worst enemy of the bull. Great luck as always.
ReplyDeleteEverything has been thrown at this market and it's still at ATH.
ReplyDeleteFrance, the second major European player is at year high despite being in a state of social and financial bankrupcy. More mind boggling is its 10Y rate at 2.1%. We are in a once in a lifetime environment where there is so much cash and buying power available that nothing else matters any longer. TA is irrelevant, EW is a joke, the market keeps going up and up and up as there is absolutely no alternative whatsoever. The system is forcing you into the stock market whether you want it or not as Zero Interest Rate policies in place for several years on major currencies have killed the savers. There is no other option but to buy stocks until such time, months or perhaps years from now, the system collapse on its own weight due to a shift in sentiment brought by a lack of faith in CB policies. Until then, you can forget anything else.
You are correct Eric but there will always be strong corrections so be aware of that. This has been and continues to be a forced bull by the fed for 5 years. No sign of that letting up as rates will stay near 0 for two or more years. That's Yellen's promise. Nowhere else to put your cash. Silly but reality.
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