Nearly 90% of the stocks in the S&P 500 index are trading above their 50 day moving average. This is an extreme reading and suggests that, as seen in the past, there should be an imminent pullback in the index.
One week ago we said despite the three week rise in the indices, the weekly charts looked just plain bullish — another week is in the trading books with further gains. That’s four straight weeks of bounce off the January mornigstar pattern highlighted back on February 19th.
The S&P 500 has broken through its 50 day moving average and settled just above its 200 day average, and the next level of resistance is the downtrend line extended off the late 2015 highs and this year’s January high. We have been monitoring stochastic oscillator reversal signals for the last five months and they have been reliable. When the oscillator makes a bullish crossover in and oversold condition and then moves up and out of that oversold zone, it is a bullish signal, and the reverse is true for the bearish signal. The oscillator did make a bearish crossover last week and it looked like it was moving down and out of its overbought zone early this week, but it managed to remain “in the zone” and, in fact make another bullish crossover.
The S&P 500 bounced about 13% off its 2015 October low, and it has now bounced about 12% off its February low. At this point in time and price, and with the stochastic indicator clearly conflicted, a pullback seems like a likely scenario. But, that will require a confirming stochastic signal, it has been trustworthy up to now. Of course, a news event next week, a particular algorithm, more ECB commentary, the direction of crude prices, or any exogenous event could inject high levels of volatility that could send a false preliminary signal. That’s just the trading world we live in now.
Apple (APPL) shares have not taken out the $102.50 level, and they should have.
They have been trading between support at the 50% retracement level and resistance at the 38% retracement level of the 2013 low and the 2015 high. Moving average convergence/divergence has been tracking higher and above its centerline, and the accumulation/distribution line is above its rising 21 period signal average.
But resistance remains intact. The stock’s continued inability to take out this resistance level is problematic and should be a caution flag.
Here’s a link to my analysis of the FANG stocks published on TheStreet.com yesterday.
Spot copper prices broke above the neckline of the inverse head and shoulders pattern that I highlighted last month, which, arguably, could have initiated the rally in the broader commodity space. Now, however, the industrial metal has met resistance at its 200 day moving average and formed an eveningstar pattern. This three candle pattern represents a transition from bullishness-to-bearishness and is considered a reliable reversal indication.
Here’s my article on UnitedHealth Group (UNH) recently published on TheStreet.com
Of course there could be a pullback, one is to be expected after a three week rally, but the weekly charts of the major indices are just plain bullish. The ideal technical scenario going forward would be some constructive consolidation under the 200 day moving averages, and then a run at the all-time highs.
Apple shares have been trading in a horizontal channel this year, bordered by the 38% and the 50% retracement levels of the 2013 low and the 2015 high.
The momentum indicators have been moving higher during this time and the accumulation/distribution line is back above its 21 period signal average. The stock price crossed back above its 50 day moving average this week and is currently attempting to take channel resistance in the $102.00 area.
The weekly close is always important, it colors the candle and often defines the bearing of the market going into the new trading week. This Friday’s close may be particularly important in that regard.
It has been a strong week to this point, with the S&P 500 index breaking above the key 1950 level and following that with further strength. What needs to happen tomorrow to maintain the momentum is a close near the upper range of this week’s candle. Any close near mid-or-lower range will create a high wick candle, one which represents an inability to sustain momentum and hold a higher level. And it could be interpreted on this chart timeframe as another lower high and a reversal signal. If that were the case, any positive psychological inertia would evaporate along with price momentum. Then there would be a replay of the battle for 1950 and after expending so much energy in the previous conflict, that is not what the market needs right now.