The S&P 500 finished a volatile week down .65% before the closing bell rang Friday afternoon. It really looked like the bulls had a chance to reverse the price action of the bears from the prior week, but as they drove prices up at the beginning of the week, the bears sold and ended up taking over for the latter part of the week.
We are certainly in a sideways to down trend on the daily time-frame. The good news for the bulls is that we are close to a significant support level around 2400 on the S&P 500. It may be a point in which the bears take profits and the bulls start buying in again. If that is the case, it could be the bottom of the trading range and quite possibly a trading range that lasts many weeks.
With regards to being in a bear market, we are still not even close. The S&P 500 and MSCI All World (ex-USA) Index are still greatly outpacing treasuries. This signals a ‘risk on’ posture. We are focusing more on international markets since the S&P 500 is lagging behind the MSCI All World Index right now.
We look at two main things when it comes to breadth. Is the indicator overbought or oversold? Is the indicator action (highs and lows) miss-matching the action of price? If it is the case with either and/or both of the above, it gives bullish or bearish signals. Right now, price is lining up with the breadth oscillators, but the oscillators are oversold signaling at least a small one to two day halt in downward movement and quite possibly a bounce in price. We will see if this plays out…
The big economic news for this week are the numbers for New Home Sales. Those numbers are scheduled for release on Wednesday at 9:00 central. When it comes to the current market operations, we are pretty far off from most stops and even have second purchase areas if prices drop. We are still looking at Extended Treasuries this week as well as Australia. The long-term trend is still up even though we are within weakness on the shorter-term.
by Adam Straseske, CMT