There has been a lot of talk about the volatility in the market and the daily reversals, but the moves on the S&P 500 chart have come within clearly defined parameters. The August breakdown was signaled, after a close below the horizontal channel support line the index had been trading in since February, and the bounce that followed met resistance at the previous January lows. That support-turned-resistance held and a series of higher lows formed the uptrend line of a triangle pattern. The index has moved from the confines of one pattern to another, and it signaled the transition. Depending on your trading perspective it has been very well behaved.
We’ve all become familiar with the triangle pattern that formed on the S&P 500 chart over the last month. Friday’s range touched resistance and closed on support, and now the integrity of the uptrend line looks to be in jeopardy. An eveningstar pattern has formed on this chart again, similar to the one that helped establish the horizontal resistance level, after the bounce off the August lows. The eveningstar is a reversal formation that develops over three days and reflects a transition from bullishness-to-bearishness. The first eveningstar was followed by a large down day, but did not lead to further selling. In fact, a second eveningstar pattern formed below the first, and it was followed by a strong up day.
The current pattern looks more ominous than the first two because of Friday’s negative volume. It was 66% greater than the 50 day moving average of volume. A breakdown at this point suggests a retest of the August low. On the other hand, this last eveningstar may be more like the second and support could hold and the index make another attempt to break above resistance. Watch the range.
Of course, the S&P 500 closed right on the uptrend line, its overall range neatly positioned between triangle support and resistance. The market is maniacal, but its short-to-intermediate term direction could be determined by a confirmed break from the narrowing range of a triangle consolidation. A candle reversal pattern has formed, volume spiked, and the support line looks vulnerable. More over the weekend.
A bearish shooting star (or gravestone doji) formed after yesterday’s volatile session on support at 1990, and that level has been badly broken at this point in today’s session. The uptrend line drawn off the August and September lows is now the next level of support.
If the index can get back above the 1990 level it would help to confirm the August/September consolidation as a rising triangle, and suggest a move back up into the horizontal channel range it had been trading in for most of the year, but if the uptrend line is broken the pattern becomes a declining triangle and projects a retest of the lows.
Here’s my technical take on Tesla (TSLA) from TheStreet.com this morning.
Everyone is familiar with the hammer candle. It has a narrow opening and closing range situated at the top end of a wide overall range, and is considered a bullish reversal candle in a down trending market. The expression is “hammer” out a bottom. The reverse of a hammer candle is called a shooting star or a “hammer down” candle. Like the hammer it reflects a strong shift in momentum but in the opposite direction, and technicians consider it a sign of rejection and a bearish reversal candle.
A shooting star formed on today’s daily chart of the S&P 500 only one day after the index broke through a key resistance level. It closed right at that level.
It looks like a key close on the S&P 500 with the index back above the 1990 level; perhaps it has decided which road to take. Of course, the technical picture could change dramatically tomorrow morning, after the market decides what is good news and what is bad news, and then if good news is good or bad news is good, or vice versa.
Shares of Salesforce.com (CRM) dropped in August to test key technical resistance-turned-support at the $64.65 level. This level was the horizontal top of a large rising triangle pattern that formed in 2014. The stock has bounced nicely and is back above its 50 and 200 day moving averages.
Of particular note on this chart is the Chaikin money flow indicator, a 21 period average of accumulation/distribution, which is above its signal line and solidly in positive territory. The indicator has been consistently strong since the 2009 low, except for the five month period in 2014, during the early formation of the triangle pattern. Salesforce is displaying constructive price action and has buyers on board, it looks like it is ready to resume its inexorable march higher.
Here is a link to my analysis of Quintiles Transnational Holdings (Q) posted on TheStreet.com this morning.
Jim Cramer interviewed Tom Pike the CEO of Quintiles on Mad Money last night and he described the company as “a simple story in a very complex industry.” The technical picture confirms his view because simply put, the stock price keeps moving from the lower left of the chart to the upper right.
The S&P 500 gapped open higher yesterday and never looked back, finishing up 1.28% on the day. Now it looks like it may retest the 1990 level. This is the same level that acted as support in January and more recently reversed roles, and acted as resistance halting the bounce off the August lows. A retest of that level would form a rising triangle pattern, and a sustained break above horizontal pattern resistance would reestablish the 1990 level as a support platform. From that base the index could make a run at the 2040 level and attempt to reenter the horizontal channel range that it traded in for most of this year. If it could accomplish that 60 point move and hold above the bottom end of the channel, then an eventual retest of the highs would seem inevitable.
If the index fails to break above the 1990 level then it would follow that the uptrend line drawn off the August and September lows is breached, fortifying the bear case. At that point, a retest of the August lows becomes a possibility.
There is really any number of scenarios that could play out. The two that I have outlined are logical possibilities and provide context, but whatever road the index chooses to take, it is likely to be accompanied by volatility.