The first chart shows SPX broke above the W-pattern at 1,280 and prior resistance at 1,290, which are now major support levels. Over the past three weeks, SPX generally traded around the daily upper Bollinger Band, except for a two-day pullback to the daily middle Bollinger Band. Consequently, a pullback and consolidation should take place soon. Major resistance levels are the weekly upper Bollinger Band, currently 1,335, and monthly upper Bollinger Band, currently 1,342 (the high last week was slightly above 1,340). Short-term support levels are the 10-day MA, currently 1,327, which held previously over the current uptrend, and the 20-day MA (which is also the daily middle Bollinger Band), currently 1,318.
The second chart covers the entire cyclical bull market. There have been intermediate-term uptrends and downtrends within the cyclical bull market. The NYMO 50-day MA and daily NYSI (both below price chart) reached intermediate-term peaks. Also, NYSI made a lower high, while SPX made a higher high, which has been consistent over the entire cyclical bull market. The CPC 50-day MA and VIX 50-day MA (both above price chart) indicate negative sentiment and complacency. However, the contradiction suggests there’s really not that much complacency, since investors are well hedged.
The price chart shows SPX (black line and right scale) and TLT (long-bond ETF; gray line and left scale). Both the stock and bond markets rallied strongly off their lows. However, currently, institutions cash positions are low. So, there has been rotation between the stock and bond markets recently. The July to September quarter turned out to be a strong quarter. Consequently, institutions became fully invested for "window dressing."
The new month and quarter begins Monday. New money typically flows into the market over the first few days of a month. However, given the market is fully invested, upside is limited. Consequently, if SPX rises to around 1,350 within the next two weeks, that may complete the intermediate-term uptrend. So, the risk of a substantial market decline is high, within the next three months, until the intermediate-term downtrend is completed.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.
Free charts available at http://www.peaktrader.com/ Forum Index Market Forecast category.
