S&P 500 - 3Day Chart - 10 Months

                                                                                                                                                                      

The 3-Day Chart is highly useful in that it tends to smooth out the day-to-day noise and gives us a better illustration of market trends.   Except for the prices, everything in the chart has been mulitplied by 3.  Each price and volume bar represents 3 days.  The blue 50 day MA is really 150 days (that's why it still hasn't dropped below the red 26 and orange 13 day MAs (in actuality 78 and 39 day MAs respectively) - 150 trading days ago prices were pretty high!)

The 3-day very clearly shows the upper reisistance in the S&P 940 range that held in January and again in June.   And I drew a line showing the lower 880 support level that held throughout May.   After being bound in a price range over a period of time, a breach in the range in either direction will determine trend.   And we're about to breach on the downside.

In the 3-day chart, the important 50ma proved the resistance to the March rally.

A couple of points:

Look at the MACD - blue line (fast) crossed over yellow (slow) back in March and has just now crossed back under.  MACD is still above the center 0 line, but the slope isn't increasing and it should turn south soon.  MACD-H after also being positive since March reached it's apex in May (upward momentum increase stalled) and now below the center 0 line.  The fact that prices in May increased after the MACD-H stopped increasing is considered highly divergent - in terms of trend it indicates a trend reversal, and that is what has happened (higher prices should generate higher MACD-H, not lower, so the price increases cannot be sustained).

Look at volume.   After the end of March the overall level of volume declined while prices increased.  This is another bad sign.  If the big boys thought that the rally was going to continue (GO GREEN SHOOTS!!), overall volume would tend to rise as prices rise - people don't want to be left behind if they think the market is going higher.   But obviously they sort of don't, do they?

And lastly - keep an eye on the futures - is there any strength left in the 880 support area? 

 

hmmmm.... futures are below 870.   I don't think so.

 

 

If this turns into a substantial downtrend from here (and all points seem to be pointing south), this is definitely the time to enter on the bear side.  I still like the inverse financials SKF and UYG, both of which are extremely cheap right now and will only get rise as the market goes down.

 Look out below!