The S&P closed yesterday at 1002 dipped in the overnight below 1000 and has rebounded. I consider the steady upward move since midnight as portending a higher open in the markets.
I wrote last night about the potential Fibonacci 38.2% Retracement area at 1014. There's another big resistance also staring us in the face at 1007 that we've already bounced off of once.
Here's a chart
S&P500 - Daily Chart - 11 Months
Back last fall, when the markets were plunging, prices hit an initial exhaustion in October, and rebounded before resuming the plunge in November. The high of that initial rebound? 1007 - the same level as our current high hit this week. It may be hard to see, but I drew a red line across the chart at that level and, as I said, it's already held as a resistance point. Combine that with the 1014 Fib resistance area and suddenly the immeidate way upward is looking quite problematic.
Let's look at the MACD-H. See how high the MACD-H was at the Oct 1007 pivot? See how low the MACD-H looks at the August high? This is a bearish divergence. The current market doesn't have nearly the same level of upward momentum to get through this same area that stopped things cold back when it had much stronger upward momentum back in October. This suggests (weasel word) that prices will go down from here. We'll see. Add this to all the other reasons why the charts indicate that the rally can't be sustained. The market hasn't been paying attention to the charts so far. LOL
Look also at yesterday's volume. That's quite a red spike. We're having a tough time getting high volume on up days in an uptrend, but give the traders a down day and everybody comes out of the woodwork. Does this suggest strength on the bull or the bear side?
Here's the same chart only showing the last 3 months:
S&P500 - Daily Chart - 3 Months
On the chart you can more clearly see where current price is in relation to these 2 resistance lines. You can also see how MACD-H is still declining (bearish) suggesting that the bulls have run out of gas. And of course there's that big red volume spike that the bears put up yesterday.
I don't think anyone wants to say that things are headed south from here - regardless what the charts have said, anyone who has expected a downtrend since April has been burned. So I'll just settle for saying that, at this point in time, the signs don't necessarily support a big upward move.
If the S&P manages to get past this resistance area and the MACD-H starts looking healthier again I would consider very bullish and start looking ahead toward 1100 and 1200, but until that happens, caution should be a watchword.
FAS en fuego
I use the S&P as a proxy for entry and exit into the financial ETFs (UYG, FAS, SKF, FAZ), since the financials tend to be the tail that wags the market dog. However, look at this past weeks price action, particularly the past 2 days where things have stalled.
Now consider FAS the past 5 days:
7/30 +6.7%
7/31 +1.8%
8/3 +7.9%
8/4 +6.1%
8/5 +9.1%
27.1% in 5 days. And this morning, so far, +4.9%
First off, I hope everyone's in FAS and enjoying this. But notice that the connection between FAS and the S&P is now off - especially the last 2 days. The financials should be lifting the broader market - and they're not. I don't know how long this disconnect will last, (and I certainly expect when things turn around that the inverse financial, FAZ, will lead the broader market down) but I think it's worth noting.
That's the deal for today. Good luck! GO FAS!