Last week’s erratic price action played out in a defined range and unexpectedly helped to stabilize the markets. Friday’s strong session was the icing on the cake and transformed the weekly and monthly candles from neutral to bullish.
Early in the week we noted that the stochastic oscillator on the daily S&P 500 chart, which we have been following closely for several months, gave a bullish signal. The oscillator is now crossing its centerline and the next level of technical resistance is the former support-turned-resistance of the declining channel, currently in the 1970 area.
The action over the last weeks formed two hammer candles in an important area of previous support. Stochastics on this time frame is just making a bullish crossover and exiting an oversold condition. The relative strength index is improving but remains under its centerline, reflecting a lesser degree of positive momentum, and the accumulation/distribution is back above its 21 period average after briefly dipping below it.
Finally, the potentially positive momentum shifts seen on the faster timeframes has yet to show up on the monthly readings, but a bullish hammer candle formed adding further significance to the 1875 to 1900 area and the A/D line continues to track above its signal line.
The technical indications suggest that the bounce has more room to run, but it will be interesting to see how confidently the broader market responds to its first level of resistance.