Medium-term technicals suggest the SPX will be much lower six weeks from now. The chart below is a daily chart of the SPX, with indicators, since the end of the rally in November. The chart shows that the NYSE Oscillator (ie NYMO) 50-day moving average peaked just above 25 two months ago and closed at 2.12 on Friday. Normally, when the Oscillator’s 50-day MA rises to 25, it will drop to negative 25. Also, the second half of the downtrend tends to be steeper than the first half.
Also, the chart shows that the VIX’s 200-day moving average fell last week to 12.38. VIX closed at 11:85 on Friday and has been below the 200-day moving average for most of the past month. Consequently, the VIX’s 200-day moving average may fall to the all-time low of 12.29 reached in mid-February 1994, when the SPX fell 9.7% over 60 calendar days from early February to late March 1994. 1994. Therefore, there may be little upside for SPX, and at least a moderate pullback may take place in the next few weeks.
Last week, the short-term oversold technical condition of the market was neutralized. The Oscillator and Stochastic reached low levels early last week and then rallied with the market at the end of the week. However, SPX may continue to rise to just below the Parabolic SAR (ie purple dots), similar to the rise in late January, before pulling back sharply, though the 10-day MA was resistance on Friday. SPX has generally traded around its Mar Max Pain point at 1275 for most of last week.
There are many important economic reports coming up next week: Mon–none, Tue–retail sales, current account, business inventories, Wed–import/export prices, Empire State Index, oil inventories, Fed beige book, Thu–CPI, Building Permits, Home Starts, Jobless Claims and Friday: Industrial Production, Capacity Utilization, Michigan Consumer Sentiment. Also, next week is an end-of-quarter option expiration week. Consequently, it can be a volatile week.
SPX has been in a slow and volatile uptrend, over the last 3 1/2 months, after the rally ended in November, which is a bearish pattern, ie a rising wedge (within another two years of rising wedge ) or a double top (or potential triple top). Uncertainty about monetary policy may increase, although the FOMC is expected to raise the federal funds rate by 25 basis points on March 28, due to concerns about stagflation, i.e., slowing growth with rising prices. inflation.
Charts available in the Market Forecast section of the PeakTrader.com Forum Index.