Monthly Archives: November 2016

This S&P 500 Resistance Zone Will Determine the Durability of the Rally

There was an interesting disconnect in the action on the major market indices this week. They all began with a strong bounce off their weak close last week and quickly pierced through their 50 day moving averages. The Russell 2000 and the Dow Jones Industrial Average broke out to new all-time highs and closed out the week near those highs, while the Nasdaq Composite Index dragged down by the underperformance of the FANG group, and the S&P 500 failed to make new highs. Small cap stocks often lead to the upside and the downside but ultimately the broader market has to follow, so it is the action on the S&P that needs to be monitored in the coming sessions.
Last week on the daily S&P 500 chart a “gravestone” doji formed on the 200 day moving average, and the candle and the previous downside momentum were pointing to further weakness. That was not the case and the intersection of the average and the doji proved to be an inflection point that rallied the index back above the horizontal resistance zone in the 2120 area, and up through the 50 day moving average and the channel downtrend line. On Thursday the index entered a second zone of resistance near its all-time highs and was unable to power through it, instead pulling back to close where it opened and forming a perfect doji star. It closed lower in Friday’s session forming a small hammer or what could be a hanging man candle, the former suggesting a short term bottom has been “hammered out,” and the latter confirming the negative implication of the potential doji high.
The integrity of the resistance zone between 2180 and 2190 on the S&P 500 index should be the gauge by which the durability of the rally is measured.

Gravestone Dojis Form on the Major Index Charts – It’s as Bad as it Sounds

The good news is that the S&P 500 tested its 200 day moving average in Friday’s session and held above it, but the bad news is that the index had been up more than 14 points from its opening level and closed back down near its low of the session. This failure to hold the highs formed a “gravestone doji” candle or a candle with a long upper shadow and an opening and closing range situated near the bottom of its overall range. It implies that buying interest, which was evident in the first half of Friday’s session, succumbed to selling pressure, which it did, in the latter half of the trading day.
This particular doji candle is usually seen at tops but its position just above a key moving average is significant, and regardless of where it forms the message is the same – supply is outweighing demand.
Gravestone doji candles or their closely related “shooting star” candles formed on the charts of all the major indices in Friday’s session, and since they opened at their highs for the week on Monday and closed on their lows on Friday, they formed filled large dark or filled weekly marubozo candles. These candles show that the sellers were in control from the start of the week to the close, and follows into the transition in momentum that is taking place on the monthly chart.
I’ll look at the S&P 500 on multiple timeframes later in the weekend.

The S&P 500 Retesting the 200 Day Moving Average

The support zone on the daily S&P 500 chart was broken in Tuesday’s session, but a large hammer candle formed suggesting the index may have made a temporary low and could be poised for a bounce. That was not to be the case and it continued lower on Wednesday and again in today’s session.
The index is clearly oversold and currently positioned just above its 200 day moving average, which is another logical technical support level, but applying logic to markets is itself illogical. What can be said at this point in time and price is that the roughly 4.5% pullback off the August/September highs penetrated several key levels of support, turning them into key levels of resistance, and it will take a lot of upside momentum and a reversal in investor sentiment to pierce through these multiple layers of resistance.

Bullish Move in Gold Takes it Back Into a Bearish Channel

The SPDR Gold Shares ETF (GLD) had been moving in a declining channel that began forming after the July high, but in early October it broke below the pattern support line and continued down to test the 200 day moving average. It held at the average, oscillating around it last month, as it moved back up to bottom of the extended channel former support-now-resistance line. The fund price gapped up on the open in Tuesday’s session taking it back into channel range but just below the lower end of a previous gap down.
The relative strength index has moved above its center line and moving average convergence/divergence made a bullish crossover. Overall volume popped above the 50 day moving average of volume yesterday, but Chaikin money flow remains in negative territory and the accumulation/distribution line is below its declining signal average. The move on Tuesday was important from a technical perspective and now the chart clearly outlines levels of support and resistance going forward.