Monthly Archives: December 2015

S&P Stochastic Update

The stochastic oscillator has been our lead indicator on the S&P 500 daily chart. Its movement in and out of overbought and oversold conditions has signaled short term moves in the index. It dropped out of an overbought condition at the beginning of the month, and yesterday’s S&P close is once again testing the lower end of the trading channel it established earlier in the year. The oscillator is only at its midpoint and the assumption is the index has lower to go, which would most likely require a break of channel support.


Russell Breakdown

The major indices have turned lower but remain above trend line and moving average support for the time being, with the exception of the Russell 2000 index, which is below its 200 and 50 day moving averages and breaking an uptrend line drawn off the lows of the last two months.


Transport Breakdown

The Dow Jones Transportation Average ($TRAN) dropped 2.8% today, accelerating a triangle breakdown on its daily chart and the pattern price target projects a 50% retracement of the 2012 low and the 2015 high.


The Key S&P Support Zone

The S&P 500 index is fast approaching the lower end of the channel range it traded in from April to August, and its rising 50 day moving average.


The expected result is a period of stability above this support level. The stochastic oscillator made a bearish crossover at the beginning of the month and turned down and moved out of an overbought condition. In the past, this has signaled a downturn in the index, but the nearby reinforced support area, could provide enough time for the stochastic reading to turn positive.
The bottom line is: the integrity of the 2047 to 2337 zone is key to the direction of the index over the short term.

Big Day/ Flat Week

It was a very powerful end to a very benign week. The major market indices were up over 2% on the day but flat on the week.



Focusing on the S&P 500 chart, the strength in the index on Friday created a large white candle just below its old highs. Those old highs mark the top end on a channel that it traded in from April to August, and old highs do have a psychologically magnetic property. On the other hand, there was a bearish crossover on the stochastic oscillator and it moved out of an overbought condition. These crossovers have been reliable signals of shifts in the short term trend, and, additionally, the accumulation/distribution line crossed below its 21 period signal average.

A Preliminary Warning Sign on the S&P Chart

The stochastics oscillator on the daily chart of the S&P 500 has entered an overbought condition, and as I have been saying for some time: The stochastic oscillator has been particularly accurate over the last several months signaling short term shifts in the direction of the S&P 500 500. These changes in direction usually follow a crossover on the oscillator and a move out of either an overbought or oversold condition.
It is once again, attempting to make a bearish crossover in an overbought condition. This could change depending on today’s close and bounded oscillators can stay overbought or oversold for long periods, but it is a preliminary warning sign.