SPX fell sharply Fri on slightly stronger than expected employment reports. Short-term technical indicators suggest a trading range next week. Financial markets will be closed Apr 14th for Good Friday, and the week after next is options expiration week. However, after the next week or two, a steep downtrend may take place, since most intermediate-term technical indicators remain market bearish and the market is overvalued. The chart below is an SPX four-month daily chart, since early Dec, with indicators. SPX closed Fri below the 20-day MA for the first time in a month, after rising to the daily upper Bollinger Band Fri morning. Moreover, SPX held the bullish flag low at 1,292, which is significant support. A fall below 1,292 may accelerate selling. However, 1,292 may hold short-term, because there are further support levels at the 50-day MA and daily lower Bollinger Band, currently roughly 1,288 and 1,289. The ADX indicator shows little buying and little selling by large institutions, which can generate big market moves. However, there has been a little profit taking recently, along with short-selling and short-covering. Currently, the ADX green and red lines are roughly equal, while the generally flat ADX black line indicates a trendless market. Large institutions are holding, perhaps waiting for earnings guidance in Apr. The NYSE Oscillator indicator (NYMO) continues to suggest SPX will be much lower within two months. The NYMO 50-day MA rose above 25 in early Jan and closed at negative 4 1/2 Fri. Typically, when the NYMO 50-day MA rises above 25, it will fall to negative 25. Also, the second half of the NYMO 50-day MA downtrend is more market bearish. However, two other indicators (not shown) have had somewhat offsetting effects, i.e. the moderately to severely market bullish CBOE Put/Call and the extremely market bearish VIX 200-day MA, which are affecting SPX direction. The daily NYMO closed below negative 36 1/2 Fri, which suggests an SPX upward biased next week. There are many potential catalysts that can cause a steep market decline, e.g. slowing earnings growth, a deflating housing bubble (which will create a negative Wealth Effect to slow consumption growth), high debt levels, and a low saving rate. Moreover, there are signs of economic strain, e.g. rising employment and higher capacity utilization, which will intensify when the trade imbalance narrows, i.e. export growth rises and import growth falls, or both the current and capital accounts narrow, which will slow growth in the domestic goods market and slow foreign capital inflows, which will contribute to inflation. Financial markets seem focused on when the monetary tightening cycle will end rather than other potential crises. Charts available at PeakTrader.com Forum Index Market Forecast section. |
