S&P 500 Chart Update

When last I expounded on the stock market, I told you that stocks had hit key resistance and could not go higher.  I told you to beware earnings because they would surely disappoint.  So what happened?

The S&P 500 (^GSPC) ran up another 30 points and Research In Motion (RIMM) blew away their earnings number.

A little hubris on my part?  Perhaps.  It’s dangerous calling tops and bottoms.  You would think I would know by now, but I never learn.  I always try to have an opinion on the market and it’s difficult to have a feeling for more than a few days or weeks the way things go with “Mr Market”.

However, after that initial run up of spite (as I like to call it when I am proven wrong), the market has sold off in recent days (thanks for nothing).  Now you will get the people talking about buying dips in this market.  That works in bull markets, but I am not sure the same is true in bear markets.  And believe me, we are in a bear market still.  Or haven’t you looked at your 401k performance recently?  Not quite back to par for the year is it?

So if you couldn’t tell, I still don’t like this market.  Take a look at this chart and I will share my reasons why.

Today I left off the volume-by-price and went with the Bollinger bands.  They are showing a contraction right now.  This has happened before in recent market history.  In January and February, this reduction in market volatility (which is partially what the bands measure) has been followed by a market sell off.  The February market was particularly bad.  Certainly this market is a little different than those other two sell offs.

For one thing it is more overbought as measured by the Full Stochastic indicator.  This could work against the market, however, as it recently dipped out of the overbought range.  Last week this was not a reason to sell, but in other cases it has been.

The MACD histogram continues to roll over.  I think the lower high after the market spike last week is a tell that buying pressure just is not there.  I think the market is getting ‘tired’ and will pull back a bit more.  Where will it go?  Good question.

Throwing some Fibonacci lines on the recent bear market rally, I think we see that there is still some room to drop to get to support.

A 50% retracement would put the S&P at the 755.  This is a level that I will be watching closely if the sell off continues.

Of course, I could also be wrong again.  We could get a blowout earnings announcement and that will change the game again.  If that happens, I will be certain to revise my thinking!  One must re-evaluate when one is shown to be wrong.

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