Market Overview
After undergoing some price deceleration as it approached the key level of 2040, (thereby suggesting that overhead resistance was having some effect) SPX was given the catalyst it needed to propel it through the obstruction that stood in its way. On Thursday, Mario Draghi made some bullish comments about more stimulus, and this was followed by China cutting its interest rate again on Friday. The index responded with a 60-point move to 2080.
Now that we have overcome the lower resistance band, we should expect higher prices until such time as the typical warnings that we have come to the end of the road begin to appear. These consist of deceleration in price, divergence in breadth and momentum indicators, as well as the refusal of some key indexes to follow the lead of the SPX. Already, as we will see later, last week IWM and XBD increased their relative weakness to SPX by not keeping up with its rally. But the signs are, at best, mixed right now and we will have to see if the upside momentum has enough reserve to take us to a new high. If the August low represented the end of primary wave IV and if we are now in primary wave V, the odds of exceeding 2135 — which is only 60+ points away — are pretty good. We should also be aware that when this top is in place, the end of the bear market will be far more likely and not just a false alarm.
Let’s take a look at the charts to see where we are!
Intermediate Indicators Survey
Last week, the weekly MACD recovered almost 7 points to -18.30 and is still negative, but the histogram turned positive.
At 100, weekly SRSI has now reached the top of its range and we’ll need to wait until it begins to loose upside momentum to signal a reversal.
The NYSI (courtesy of Stockharts.com) has gone positive for the first time since June and has started a good uptrend. However, the degree of overbought conditions in both its MACD and RSI are suggesting that a top may not be far away. Its ability to continue recovering before turning down again will give us some clues about the underlying market strength.
In P&F charting, congestion from the low to the break-out point is the most dependable. That was filled at 2040. We have now started on the count at the left of the low which still has more potential. We’ll consider the validity of each phase count by observing price behavior and that of the indicators as the index works its way through each one.
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