Monthly Archives: October 2016

The S&P 500 is in Transition on the Monthly Chart

The monthly chart of the S&P 500 index reveals an interesting transition in momentum that has occurred over the last four months. A strong bullish white candle formed in July which penetrated the resistance line of a horizontal channel the index had been trading in since early 2015. It was followed in August and again in September by individual doji candles. These candles have very narrow opening and closing ranges and reflect conflict between buyers and sellers, and they were followed in October by a large dark bearish candle.
This sequence of candles is similar to an eveningstar formation (with two doji candles, instead of one) and represents a transition in investor sentiment from bullishness to bearishness. The October candle closed just above the channel resistance-turned-support level, and follow-up penetration of this support that takes the index back into the channel range is required to confirm the bearish transition.

Dr. Copper on the Road to Recovery

Copper has lost over half of its value in the last four years, but this year it has been attempting to consolidate in an effort to halt the decline.
The daily chart shows the consolidation as a period of lower highs and higher lows forming a symmetrical triangle or wedge pattern. This week the commodity price bounced sharply off the triangle support line to retest triangle resistance.
The MacD is making a bullish crossover and the relative strength index has crossed above its 21 period average and center line, both reflecting the improved momentum. Overall volume has spiked, the accumulation/distribution line has crossed above its signal average, and Chaikin money flow is moving into positive territory. Volume and money flow is supporting this week’s rally.
It is likely there may be a pullback before a breakout, but if the pattern is penetrated it projects a price target measured by taking the height of the triangle base and adding it to the breakout level. That would take the commodity price back up to the area of the weekly long term downtrend line.

The Amazon Eveningstar Pattern Marked the Top

There were signs of technical deterioration on the Amazon (AMZN) chart ahead of the earnings report, as I noted on The Street on 10/19..
The weekly eveningstar pattern marked the recent high and the post earnings report drop took out several layers of support on the daily chart, including the 50 day moving average. The next level of support is in the $755.00 level, below that is $730.00, and then the 200 day moving average in the $690.00 area.


The Russell 2000 Breaks Support

The chart of the daily iShares Russell 2000 ETF (IWM) shows it currently breaking below the uptrend line drawn off the lows of the year and a horizontal support which are intersecting in the $120.00 area. Late session heroics in the form of a hammer or similar reversal candle will be needed to prevent further weakness going into the end of the trading week.


The S&P 500 Sending Some Early Bullish Signals

The S&P 500 is positioned right in the middle of its trading range, and just below the 50 day moving average. The price action is neutral but there are some initial bullish technical signs.
The daily chart outlines the parameters of support and resistance, and shows the MacD making a bullish crossover and Chaikin money flow moving into positive territory. These are early signs of positive momentum and money flow. If the index penetrates the 50 day moving average it should continue on to retest the resistance zone, but it is foolish to speculate beyond that point.
The range rules and continues to hold and to frustrate traders.