$Stock*Shop*Charts*News*Option$

[DiscoverGold]

Weekly Market Summary
By Urban Carmel | April 8, 2017

Summary: US indices made their all-time high in early March; aside from the Nasdaq, which made new highs this week, these indices have since moved sideways. SPX has alternated up and down 5 weeks in a row, producing little net gain. Seasonality is particularly strong in April, so a fuller retest of the March highs might still be ahead this month. And indications that 2017 will be a good year for equities continue to add up. But there is a notable set up in place for the first correction since November to trigger. This week is likely to be pivotal.

* * *

Our last weekly summary post two weeks ago emphasized two points. First, that strong uptrends weaken before they strongly reverse. Second, that even years with powerful returns (think 2013's 30% gain) experience multiple drawdowns of 3-8% along the way, meaning the smooth uptrend that had been in place from November to March has likely ended. That post is here.

In the event, SPX reversed and gained 2% at its highest point in the following week. That high was less than 1% from the index's all-time high (ATH). The broader NYSE was similar. Both NDX and COMPQ made new ATHs this week.

Still, it's accurate to say the reversal in equities has been weak so far. Uptrends (green arrows) are partially defined by their ability to become and then stay overbought (top panel). Since the State of the Union on March 1, SPX has failed in this regard. Short term moving averages are either declining or flat. Until this changes, SPX is likely to chop sideways or, more likely, test lower levels (yellow shading). Enlarge any chart by clicking on it.



The upcoming week is likely to provide some resolution. SPY has alternated direction (up, down) the past 5 weeks, with little net gain. That loss of momentum typically leads lower. In the weekly chart below, note that the MACD histogram is now at zero (lower panel). When it has gone negative (vertical lines), SPX has subsequently fallen to its 20-wma or lower Bollinger (arrows). This implies a move to 2300 to 2200, respectively, equal to a loss of another 3% to 7%.



In the chart above, note that those downtrends are typically close to ending when weekly momentum is oversold (top panel).

The set up two weeks ago was for a bounce off the first touch of the 50-dma (blue line). Check. But subsequent touches increase the probability of a break lower. SPX is now back at that 50-dma. Below the 50-dma and a move to the 2300 area is likely; that area corresponds to the December and January resistance high (orange shading). That is likely to be good initial support for a reaction higher. Multiple touches there, however, make a subsequent move to the 200-dma (red line) likely. That 2200 level was the resistance high from August to November. The first touch of the 200-dma is also very likely to lead to a strong rebound (green arrows).



So, this upcoming week appears to be pivotal. The weekly set up (which hasn't triggered yet) is at a point where further weakness ushers in the first corrective move since November.

Corrections can happen any time but they are less likely in April than in just about any other month. April is seasonally one of the most bullish months of the year for equities. This is a tailwind for SPX that argues for a more clear retest of the March 1 high being directly ahead.



Add to this that the upcoming week ends with Good Friday: SPX is typically strong the 3 days before and after this holiday. The week after Good Friday is April OpX, another seasonally strong week. Seasonality has not been particularly accurate over the past few months, but these are potential short term tailwinds (from Sentimentrader). . .



* * *

http://fat-pitch.blogspot.com/2017/04/weekly-market-summary.html

• DiscoverGold

Click on "In reply to", for Authors past commentaries