Nothing helps us understand the market better than when we look across the board and not only fixate on one index. Here I will look at specific indices such as the S&P500, DOW, and NAZ, and at the whole market; the WLSH5000. This coming weekend I will look at VIX and market breadth which already suggested a bottom was at hand days ago; and why these suggest further upside. Next week I will discus price targets based on the chart pattern that has formed. So you have some things to look forward too 🙂
Anyway, 1st things 1st. The S&P500. The traders’ darling. Here I’ve plotted several important TIs that many follow to get an idea about the general market direction. The first thing on this busy chart I look at are the SMAs. In this case the 5, 10, 20, 50, 150 and 200d SMA.
The 5 and 10 give an idea about the short term trend, the 2nd set (20, 50) about the intermediate term, and the 150 and 200d about the long term. What’s obvious is that price is above all 6 SMAs. Hence, the trend is up on all time frames. In addition, all SMAs are also pointing up, adding evidence to the up trend. Lastly, price found once again support at the 150-200d SMA, which it has many times before. The 2nd thing I look at are the BBs and SAR. It follows that the BBs tightened over the past few weeks, which always foretells a big move is coming. Now the BBs are starting to expand because price is moving up rapidly (>80p in 4 days in case you haven’t noticed 😉 ) Hence, the big move is most likely up.
The case for the big up move is further suggested by the buy-crossover of the MACD 3 days ago and the buy-crossover by the FSTO 4 days ago. Add to that the + div on the RSI5 between Monday’s low and Friday’s low, as well as with the mid- and early January lows and all ingredients are there to strongly suggest further upside.
The DOW shows a very similar picture as the SPX, and actually here the BB’s expansion is even more obvious: price is showing strength. Also here, the daily SAR has flipped from above price to below price since yesterday indicating an uptrend, as the SMAS do. Price found support at the 50d SMA, using it as a launch pad. Coincidently this SMA and the daily R1 level are about the same. With that level cleared we need to look at the R2 level (18233, SPX 2102). Note also, though not shown, that the DOW closed firmly above the descending trendline that has held price in check since the late December 2014 high. Yesterday, price closed right at the trendline, and the bulls used it to their advantage.
The Technology sector (COMPQ) is showing a similar chart as the SPX and INDU and so does the entire market (WLSH5000). However, the COMPQ has not yet broken above the two January highs, whereas the WLSH has done so already, and today it had its highest close in over a month. Says something. The charts show that all markets are now aligned, moving in unison, and are ready to move higher. There are no divergences. As said, next week I will discuss how much higher I think this can go. Until then an update on how market breadth indicators helped identify a bottom will follow.
In conclusion, unless the market throws a very weird curve ball tomorrow, I expect higher prices over the short (days), medium (weeks) and long term (months). How high this market wants to go all depends on how bearish investors are (yes the more bearish investors are the higher it will go since then more and more will have to buy back afraid of missing out and left behind; that’s what fuels a third wave). Given the dismal market breadth reading at this weeks low for the SPX (5th/6th lowest since the August 2011 low), the market haes plenty of room.