The S&P 500 maintained its strong bullish posture and long-term Market Sentiment with a near-term bounce late in the week following an earlier bullish intermediate confirmation signal (essentially a “buy the dip” signal on the Market Forecast).
The big pattern that developed was the breakout on the Russell 2000 above its February highs on Friday that nearly produced a bullish overbought cluster – in this case that would have been at the start of an intermediate run for the small-cap index.
The near-term line (blue) bounced above the chart’s midpoint. The things to watch for next week are: a near-term peak above the 80th percentile and the near-term line maintaining its position in the chart’s upper half for the entire week. Otherwise, the lack of those two things would be another red flag for the current intermediate (green) run.
The S&P 500 formed a long lower shadow on its weekly chart. This is not as bearish as a long upper shadow but can be considered bearish nonetheless. Of course, it takes another week or two to confirm the candlestick pattern.
This week marks the 17th week for the current bullish trend on the Heikin Ashi candlestick charts. The typical bullish intermediate run lasts 3 months. But, this week’s candle is strongly bullish and next week’s candle will at worst be a transition candle.
The MACD and Stochastic indicators are showing red arrows and are both below their respective moving averages. But, neither are threatening their chart midpoints anytime soon to warrant expectations of an imminent pullback.
After breaking to new 4-week highs early in the week, the S&P experienced volatility immediately after the FOMC release but has since bounced back up into the early breakout range. The 4-week range is shrinking and bringing the midpoint of the range a lot closer to current levels.
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Mid-Week Stock Market Video – May 4, 2019
Some additional insights from today’s stock market outlook video:
- Volumes and trading range are up this week but not to strongly bearish levels. Also, the VIX jumped higher and, not surprisingly, pulled back down late in the week. Most likely, volatility still has more room to run towards 20 by the end of the month.
- Crude oil started the week very strong but finished with a long upper shadow on its weekly chart for a second straight week. Considering crude has a very strong correlation with U.S. equities right now, this is another red flag that weakness may be forthcoming in stocks.
- So far, the Dollar’s breakout from last week looks like what could be a bearish “fakeout” pattern considering the $98 level (upper end of Fibonacci retracement zone) didn’t hold. It’s currently at $97.50 where the old highs exist. If the greenback can’t hold this level by the end of next week, this can be a really bearish pattern – especially considering declining long-term yields.
- Emerging markets stand to benefit the most if the dollar drops. They have been underperforming during its previous rally and breakout.
- The Rate of Change for $SPX on a 3-month basis is coming down from an extreme and remains at high levels that have shown to precede periods of volatility previously. It’s run from -20% to +20% in 3 months in the biggest move of its kind in years for that short amount of time.
- This week’s pocket of weakness in S&P sectors are interest-rate sensitive areas (Utes and RE) and consumer stocks (Staples and Discretionary)
- Bullish trade example in Healthcare sector that has been underperforming but is showing renewed relative strength vs other sector with a stock showing bullish breakout pattern.
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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
