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Short Term Technicals Continue to Suggest Caution



"Common sense is the measure of the possible."

(Henri Frederic Amiel)

Key Points:

  • We continue to focus on the large rising wedge technical formation and the corresponding 1270 resistance level on the S&P.

  • The emergence of a few technical conditions suggest the market could have difficulty pushing higher in the near-term. Specifically we would note:

    • The MACD momentum indicator crossed to the downside.

    • Small stochastic divergence on the SPX.

    • Accumulation volume has been declining.

    • We've seen signs of distribution into the close during the last two sessions.

Market Comment:

Today's 'Jo' will be just a quick note to update our readers on the market's trend line resistance points we've been talking about. In the last 'Jo' I penned a piece which affirmed how the S&P 500 (SPX) slammed into the 1270 level on this massive rising wedge formation. I think it was actually stated, "Is Rudolph's nose still shining bright or have all the presents already been delivered?" I also covered 4 prominent secondary technical indicators which continue to support the probability of this resistance line holding, rather than being blown through.

Since then the SPX has continued to grapple with this same line. As you can plainly see on the following graph; over the last 2-days the SPX has attempted to cross this 2+ year resistance with no avail on a closing basis. And now there are a few other secondary technical concerns to contend with which support the probabilities of this line holding.

1. Yesterday the Moving Average Convergence Divergence (MACD) momentum indicator crossed to the downside. (The MACD subtracts a longer moving average from a shorter moving average to create a simple momentum oscillator.)

2. The SPX is also showing a small stochastic divergence.

3. The accumulation volume over the last 2+ weeks has been declining.

4. And finally, over the last 2-days the trading within the latter-half of the day has been distribution selling.

Just remember that, "a trend is valid until proven otherwise." Therefore it is extremely important to watch the "Road Signs" which are indicating potential trouble ahead for the markets.

Until next time...


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No positions in stocks mentioned.

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