Market Weakens – Bulls Sell the Highs

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Details of the S&P 500 Weekly Price Action – It was a flat week for the S&P 500. It ended the week down a mere .02%. The percentage down is small, but is another signal that the strength of the S&P 500 is weakening for the time being. The S&P 500 has been trending upwards in a broad bull channel since the beginning of January 2016. The possible pattern the S&P 500 is forming is a wedge pattern. This is a bearish pattern if it plays out and suggests at least a few weeks of sideways to down price action. There are several areas of support in the S&P 500 from breakouts and trend lines, so if the S&P 500 is topping right now, it will probably need to be tested before the bulls give up.

Bear Market Territory – Bear market territory isn’t close right now. The S&P 500 and All World ex-USA index are both far outpacing Treasury Bills on a 12-month rolling basis. Both are about 12% higher depending upon which vehicle you use to measure performance. The S&P 500 is slightly under-performing the All World ex-USA index which is why we are more focused on international markets at this time.

This Week’s Price Action According to Breadth & Economic Schedule – Market breadth has slightly weakened over the past week. Nothing odd is jumping out and screaming a bullish or bearish bias. If price can remain in the trading range while breadth gets into an oversold territory, it would be a clue to a bullish week ahead, but we are not there yet. The way the oscillator has been corresponding with price the past six months is that overbought has meant flat prices and oversold has meant a rising market. We are currently in the top third of overbought territory.

The economic data last week was pretty much as expected. The FOMC held the funds target range at 1.00 to 1.25. US GDP is still seen as growing at an expected annualized 2.6% rate. This week’s schedule has employment numbers for release on Friday at 7:30 CST.

This Week’s Game Plan – Almost all of the stops in place are relatively far from triggering. And almost all of the positions have second purchases baked into the equation, so everything has a lot of room for movement. The Light Crude Oil Index has been sideways for about 18 months showing some stability. The thought is that it will break to the upside rather than the downside. If price lines up, we will look at getting involved this week with a stop below the trading range from the past 18 months.

The overall trend of the S&P 500 is still up on a weekly time frame and sideways on the daily. A close below the 2460 range would trigger a downward trend on the daily, but another level of support is close by at the 2450 level from the previous major high in the S&P 500. It is the end of the month on Monday, so it will be an interesting week!

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