The S&P 500 reached the 4000 level this week. So what is next? I usually use the Elliott Wave Principle (EWP) to assess what is most likely next for an index or individual stock. This time, however, I would like to use “simple” technical analyses. Figure 1 below shows the daily chart for the SPX.
Figure 1. S&P500 daily chart:
S&P 500 Daily Chart.
By moving from the top to the bottom of Figure 1, I observe objectively and factually that:
- The RSI 14 broke out above the dotted red trendline: Bullish.
- The index is above its rising 10-day simple moving average (d SMA) above the rising 20d SMA, rising 50d SMA and 200d SMA (horizontal green arrows). Thus, the price >10>20>50>200d SMA setup tells us we are dealing with a 100% bull market as the index is trending higher short- to long-term: Bullish.
- Price is at the upper Bollinger Band (dotted green line) and has traded outside it over the last few days. Thus, the index is strong, but will short term, and most likely, move back inside the bands to burn off Monday’s “too far to fast” move. Overall, this setup is bullish.
- Price is above the lower dotted black and purple trendlines: Bullish.
- Price is making higher highs and higher lows (red up arrows): Bullish.
- The MACD and my proprietary Buy/Sell Indicator are both on a buy (green box): Bullish.
- The MFI 14 (Money flow) is subdued as it is not above 50 and continues to trend lower, while the price is moving higher: Bearish.
- Price appears to be in a rising wedge (dotted purple lines). Rising wedges are exhaustion moves. See here. Assuming this pattern is operable, then it will resolve bearishly within a few weeks to months. But for now, there is no sign of such a resolution: Neutral.
Thus, the index’s overall scorecard is, assigning equal weight to each line item, 85% bullish.
But what would it take for the index to become bearish?
First, daily closes below the simple moving averages are needed, especially below the 50d SMA, as that would also coincide with a daily close below the lower black and purple trendlines. By then, the index is losing support, and the rising wedge pattern is complete. But one does not necessarily have to wait that long to protect long profits as a daily close below each SMA is a further warning for the bulls. Ultimately a close below the March 25th low at SPX 3854 is needed to make a lower low and confirm a more significant correction of around 20+/-5%, is materializing.
Bottom line: By objectively analyzing the SPX’s price chart, one can make reliable assessments of the market’s current state and what it would take to turn it from the current bullish setup into a bearish mode. No need for guessing or opinions.
What’s Next For The S&P 500?
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