Market Overview

Strong Earnings Sends The S&P 500 To New Highs, Now What?

The S&P 500 continues to make new highs week after week after closing on Friday 11.07% above the 200 day moving average and 3% from its respective 20 day moving average as price nears the apex of a large ascending triangle.

The expectation for this pattern is a breakdown, trying to guess when that happens is a fools errand and we can only prepare ourselves for the inevitable event, however we do trade the widely followed benchmark several times each week and have become accustomed to the underlying technical aspects of this massive index, Let’s take a look under the hood:

On July 19 (circled in red) the SPX fired a warning shot by breaking down below the rising trend-line on massive volume. Could that be the ascending triangle breakdown we have all been expecting? Well, maybe not. The index quickly recovered and we went long within pennies of the low for the day of on July 19.

Here is the timestamped alert. The SPDR® S&P 500 (NYSE:SPY) alert we shared with members went on to award investors with a +428% gain just a few days into the trade, wow, such a blessing indeed.

Often times the S&P 500 will give investors a subtle hint of price movements before the actual move takes place. Could that dip on July 19 have been one of those times? Lets take a look at what the underlying technicals are telling us:

Our year end target for SPX remains 5000, however that will likely be a bumpy road on the way and possibly even a re-test of the 200 MA (golden line below) may come to fruition long before our year end target is acquired. What is interesting is that the latest new all time highs that were made after that high volume sell off on July 19 was made with an increasing negative divergence between price and the 5 day RSI.

Using the 5 day RSI vs the 14 day RSI is much more sensitive to changes in trend so its good to utilize both when examining many types of securities.

One other interesting aspect is that Martin Pring’s KST indicator is still on a sell signal after crossing below the signal line on July 28. Many times we will see excellent supports develop on the chart where the high volume profiles are used. With the SPX there is a massive bar nested into the 4200 level (not shown above) that will offer the widely followed index a tenable support level. Should that level fail to hold that would increase the likelihood of a 200 MA test near 3950.


Looking at potential upside, the level on watch for the next breakout using the SPY ETF is $444.9 or 0.54% higher which would increase the likelihood of a Fibonacci confluence extension of 453.9 or +.2.51% higher with a confluence of Fibonacci supports being at 435.1 or -1.7% lower with more significant support confluence near 417 or -5.9% lower.

SPX Chart Courtesy of Bloomberg


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