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DP (SPY) Weekly Wrap: Bullish Flag Forming
By: Carl Swenlin | May 18, 2018

Back in the day, options expiration days were characterized by high volatility and exceptionally high volume; however, in recent years the market stays relatively calm, and the high volume only appears at the end of each quarter. These expectations were not disappointed in today's trading. In fact, the entire week was calm, as price worked sideways into a flag formation. Volume for the last two weeks has been somewhat thin, which implies that market participants are not fully committed to the rally. Nevertheless, from the April low a rising trend has been established (a bottom above a bottom, and a top above a top), and the picture remains positive.



SECTORS

Each S&P 500 Index component stock is assigned to one, and only one, of 10 major sectors. This is a snapshot of the Intermediate-Term and Long-Term Trend Model signal status for those sectors.



STOCKS

IT Trend Model: BUY as of 5/11/2018

LT Trend Model: BUY as of 4/1/2016

SPY Daily Chart: Another perspective shown on this daily chart is SPY's relationship to the cyclical bull market rising trend line. Also, we can see how SPY has broken out of a symmetrical triangle and is consolidating just above it. If it breaks down from that support, that would be a problem.



SPY Weekly Chart: SPY is in the middle of the bull market rising trend channel. The weekly PMO is indecisive, having turned up last week, now turning back down this week.



Short-Term Market Indicators: So far the market is behaving bullishly in this time frame. Specifically, the indicators are moving down from overbought readings, while price is holding its ground.



Intermediate-Term Market Indicators: If price continues to consolidate, these indicators will top, which would be a concern. But they are still far from being overbought, and will accommodate higher prices if the rally continues.



Conclusion: Last week I gave up on the idea that we are in a bear market, and I didn't see anything this week to make me regret that decision. I am particularly encouraged by the fact that short-term overbought conditions are being relieved without significant price deterioration. So far, so good. In spite of conditions having edged toward the positive, I can't say that I'm especially excited about the market's prospects one way or the other. I suppose that is because for almost four months the market has been moving sideways in a range that has become gradually more narrow. And, while the models are on BUY, I still feel mostly NEUTRAL.

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