Similarly with other major indices in the world, the S&P 500 is currently running out of steam. The most popular benchmark of the US stock markets has posted a high at 1,040 points last Friday (point B on the chart). However the bullish trend initiated in March seems to be completed as the indicators argue now for a correction.
The last closing price is 1,003 points, just 3.5% lower. But between March and August, between the two extreme points of the bullish move (points A and B), the index jumped by 52%. The index was overbought during the first fortnight of August, but a small correction at mid-August gave another breath for the bull market players to push it further up.
Despite this last bullish wave, the medium-term momentum has weakened and there was not enough volume to create another durable trend. The bullish flows have weakened so did the price action. That’s why the momentum indicators had triggered “reversal” signals last month already. Look at the MACD shape. It has peaked, curved downward and crossed its moving average before mid-August.
This bearish signal has remained valid despite the new high of the price action posted at the end of last week. The MACD did not confirm this new high and therefore has created a bearish divergence that confirms the medium-term negative outlook (exactly like the CRB index analysed yesterday in Money Morning, confirming the strong positive correlation between stock indices and commodities markets).
The moving averages crossover system may also trigger a bearish signal either tonight (for the US session) or early next week. Typically used for trend following strategies, this technical set of tools is based on the relative behaviour of different moving averages. Here the shorter-term moving average (10-day MA, black line) is about to cross below the longer-term one (30-day MA, red line).
When the markets are trendy as they have been in the recent past (moving average crossovers are less accurate during range trading periods), this is considered as solid technical signals to take positions.
The first immediate support is the level of 950 points, where previous highs were posted (points C and D) in last June. It could become a new low as it is also the first Fibonacci retracement level (23.6%) of the rebound occurred between extreme points A and B.
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oohhhh oohh here come the ponzi boys
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