SPX Short-Term Declining Trend Initiates Neutral Signal By Erin Heim
* September 1, 2016
Yesterday saw a new Short-Term Trend Model (STTM) Neutral signal on the S&P 500. I don't recommend using STTM signals for timing or trading, but it is an attention flag that signals internal weakness within that index. I've been talking about a very short-term bounce in the making, but past a few days or a week, this signal and the SPX charts suggest a breakdown.
When I talk about the "ultra-short-term" or "very-short-term" indicators or patterns, we are looking at hours to days. The 10-minute bar chart below displays a descending broadening formation. According to Thomas Bulkowski (author of The Encyclopedia of Chart Patterns), these patterns, like a descending wedge call for an upside breakout with a minimum upside target at the highest point of the pattern; in this case, around 2185.
A look at the daily chart below and we see that doesn't take price out of its consolidation trading channel but it could get it close to overhead resistance. The Price Momentum Oscillator (PMO) SELL signal and subsequent decline, as well as a declining OBV, suggest an eventual breakdown in the short term (measured in days). Fortunately support lies near 2125, so a corrective move shouldn't be too painful. A decline to that level would "ripen" the market for a good rally as indicators are decompressed and can ready for the next up move.
Conclusion: Although the ultra-short-term is bullish, it likely won't amount to much of a rally over the next day or two. Price should remain in the consolidation zone. After that, I'd expect a short-term decline and breakdown that would take price to support around 2125 at the previous all-time highs that held for so long.
Technical Analysis is a windsock, not a crystal ball.
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