Short-term trend is down

Both our quantitative analysis as well as trading indicators suggest a down trend.


Price action today displayed a normal 50% retracement, in a form of an a-b-c, almost to the penny, of $SPX's leg down from last Thursday's high of 1,597.35 to yesterday's low of 1,552.28.

The bonds are subdividing into upwards waves, with $TNX remaining below the critical 1.8 level.

We expect the market to turn lower again in the near future, once this upwards retracement is complete. We can not exclude the possibility, however, of further upwards movement on the $SPX(could reach 1,586) as part of this retracement (low probability).

Next down-trend target is 1,505 - 1,530.

A daily close above 1,598 invalidates the above prediction.

As we posted over the weekend, our intermediate target for this down leg was 1,570, which occurred at 12:00 noon today. After a 2 or so points retracement upwards, the market continued to move lower, reaching 1,552 at the close, stopping right at the 34 day EMA. The depth of the drop was beyond our predictions, which is often the case in impulsive waves down, as fear governs the market more than numbers.

At this point, the market is oversold on the hourly, but not on the daily chart. Also, the bonds ticked up but not by a lot, leaving the $TNX at 1.702 at the close. For bonds, we expect the old highs to be tested going forward, which is bearish for stocks.

What happens with stocks in the next day or two, will determine market behavior for the next few weeks.

Market Projection from March 23 versus actual

DISCLAIMER: This blog shall not be perceived as investment advice. This is a personal diary of our thoughts on the markets. Consult a professional broker or adviser before investing.  Any opinions, news, research, analyses, prices, or other information contained on this blog are shared as personal thoughts and provided as general commentary only.

SHORT-TERM TREND IS DOWN

Today's price action, following yesterday's new all-time high, suggests that we have a possible top of the $SPX at 1,597.35. From this recent high, the bonds have reversed direction upwards since yesterday's drop of $TNX below 1.8 (today it reached 1.719). The action in the bonds is bearish for stocks, as bond price action suggests a re-test of last July's $TNX low of 1.4.

This morning, JPM and WFC reported quarterly results: The market reacted with a down move, reached important technical targets at 1,580, and then retraced to 1,589 at the close (which can certainly go higher next Monday morning). Next week, C and MTB are reporting on Monday, which will tie in with today's JPM and WFC results. 

On the hourly, this wave from 1,597.35 down to 1,580, based on our quantitative modeling,  has a structure of 5 smaller waves.  Hence, we expect that after the completion of the current upwards move that began today at 11:00am, we shall experience another leg down towards 1,570's.

From a tactical point of view, a daily close above 1,602 will invalidate the above scenario.

Market at a top ?

$SPX clocked 1,597.35 today, which falls within our target range (1,589 - 1,602), reaching extremely overbought levels on the hourly chart. To this end, $DOW reached overbought levels on the daily and hourly charts. $NDX did not make a higher high, and $RUT is below its recent highs. $TNX also fell below 1.8 again today.

Since the 11:27am high of 1,597.35, $SPX has made consecutive lower highs and lower lows intra-day.

Tomorrow JPM is reporting and will likely set the tone for the next few days or even weeks.

New highs, but closing on to a top

$SPX is in a 5th wave up (on the hourly) from the recent low of 1,539.5 of April 5 (1,554-1,548-1,573-1,568-now), with a projected target of 1,595 (range of 1,589 - 1,602) for this particular leg up. 

The high today was 1,589.07, so our range has been met. 

In addition, $SPX on the hourly is overbought

Also, $DOW since the 12,884 low of December 31, 2012, was projected to end at 14,854 (range of 14,805 - 14,900).

In conclusion, our models indicate that we may be close to a top here and hence we are skeptical of any movement of the markets much higher. 

Again, as we have been advocating for some time now, we need to wait and see what trend the market confirms.

MARKET TREND UNDECIDED

Although $SPX made a higher-high by $0.23, it did not manage a daily close above the previous high of 1,573.66. This is a condition, as was stated in our previous post, for a new uptrend signal. 

The move from 1,565 to 1,573.89 today was unexpected and presumably due to a short squeeze. 

We maintain our opinion that we need to wait and see, as advocated the last few days, what happens next: (1) A daily close above 1,574 would suggest that we move towards the 1,600-1,620 target, or (2) a move lower would suggest that we aim for the 1,500.