Daily and Weekly View of the SP 500

Jan 3, 2009: 12:42 PM CST

With last week’s price action taking us slightly above resistance on the daily chart, let’s view both the daily and weekly price structures of the S&P 500 and note additional possible overhead resistance targets.

S&P 500 Daily:

The first thing that should jump out at you is that price rallied the last three days and officially closed above the 50 day EMA, breaking resistance for the moment.  That’s a significant development, but as many have noted, it was achieved on low volume, signaling a non-confirmation.  Next week will be critical once traders/funds return from the holidays and begin to settle back to work.  It’s possible the Bulls scored an uncontested victory provided Bears were away enjoying their profits.

Next, we should be aware that the 38.2% Fibonacci retracement of the August to November move comes up around 962, which is about 30 points away.  Bulls may be hard-pressed to pierce this zone, but if they do, it will signal a potentially significant change in price structure.  You need to watch this level very closely.

Third, note that price has succeeded in making consistently lower lows and lower highs – this structure has not changed.  The structure would officially change if price were to overtake the swing-high at 1,000, creating a higher high and confirming December’s activity as a ‘higher low.’

Fourth, notice that a large-scale positive momentum divergence has been forming since October, which could be working itself off currently.  Momentum divergences signal that the next retracement is expected to be stronger than normal, or that the – in this case – bears are losing momentum as price reaches new lows.

Finally, I’m showing different signals or clues in volume via different arrows.  Traditional analysis says that rising volume confirms price moves (such that lower prices on steadily increasing volume *confirms* the price move and suggests that lower prices are yet to come… which was the case both times in September and October).  The November 750 low was quite significant because it represented a positive momentum divergence AND a non-confirmation of new price lows via volume.  In other words, the 750 level was strongly rejected and should hold for some time, though perhaps not indefinitely.

Let’s pull the picture up to the weekly chart for additional perspective.

S&P 500 Weekly:

The great “Which Elliott Fourth Wave are we in?” continues but I’m sidestepping that question to focus on other price structures.

Namely, the November price lows were achieved on a weekly positive momentum divergence, which is worth noting.

The other structure that should ‘leap off the chart’ at you is the expected overhead resistance that comes in near 1,000 via the falling 20 week EMA.  That will also be a significant barrier to overcome and would change the landscape yet again if bulls could do so.

Remember the next overhead resistance – should we make it there – is the 960 area which is the 38.2% Fibonacci retracement of the August to November swing.  Breaking above it, we would have 1,000 as the next likely resistance.  Beyond that, we’d have to declare a “Game-Changer” because price would have broken key resistance and formed a new swing high which would reverse the daily trend back to the upside.  Though it may not happen, you need to be keenly aware of this possibility.

We’re technically in a retracement swing (counter-trend move) to the upside which has key resistance levels overhead.  Both the daily and weekly moving average orientation is in the “Most Bearish Structure” possible and both trends are long-confirmed down (lower lows and lower highs).

Next week will be critical, in terms of volume participation and whether or not this recent move will be confirmed with additional strength… or negated and declared a “Bear Trap.”  Try not to get too caught up in your opinions and let price dictate the next likely course of action, however probable or improbable you may feel.

Corey Rosenbloom
Afraid to Trade.com

21 Comments

21 Responses to “Daily and Weekly View of the SP 500”

  1. Anonymous Says:

    Excellent posts once again. I must admit your blog has given me more insight on technical analysis & differing indicators (which point to possible market direction) than any other source on the web. I look forward to your continued daily posts and building my own skills through your vast knowledge. Thanks so much for all you do.

    Matt

  2. Anonymous Says:

    And Happy New Year.

  3. Anonymous Says:

    Corey,

    Very good layout for what pattern is showing. Your as good as teh guys from BreakPointTrades.com. Have you heard of them? Matt and Steve are wonderfully. They send alot of time like you do assisting folks with trading etc.

    Enjoy your site and keep up the good work. I have passed your site onto other folks I know.

  4. Charles Upton Says:

    Corey, I think the reason you get alot of “anon’s” is that the text fields of your “leave a reply” section at the bottom of posts are not displaying correctly…at least not in my firefox 2.0 anyway. -charleS

  5. Corey Rosenbloom Says:

    Matt,

    Thanks for reading and for the comment. Happy 09 to you as well!

  6. Corey Rosenbloom Says:

    I haven’t heard of the BreakPointTrades site but will be looking at it – thank you for the link.

    Thanks for reading and sharing!

  7. Corey Rosenbloom Says:

    Charles,

    I was wondering that. To me the fields show up as blank and I’m not as tech savvy as I need to be. A reader recommended I install Disqus for my comment portion which I think I’m going to do soon. If you have any suggestions on how I can correct this or make it easier to use, please let me know. Thank you for letting me know about the comments.

  8. Anonymous Says:

    Corey,

    What is the momentum indicator you always refer to? I can’t seem to find it on StockCharts.com drop-down lists? Thanks.

  9. Corey Rosenbloom Says:

    Anon,

    It’s a version of the 3/10 Oscillator.

    Use the MACD indicator and type in 3, 10, 16 into the respective boxes.

  10. Charles Upton Says:

    Wow, just look at that Oct. 10 candle…can spot it a mile away…will never forget that day.

  11. schlep Says:

    Thanks Corey. Keep up the great work – it is always appreciated

  12. Charles Upton Says:

    Corey, any particular reason for choosing those specific numbers 3, 10 and 16?

  13. Corey Rosenbloom Says:

    Charles,

    Yes, it creates a hybrid of the classic “3/10 Oscillator” which has been around for a while but was popularized by Linda Raschke in her book “Street Smarts.”

    The classic 3/10 is the difference between the 3 and 10 period simple moving average (though the MACD uses EMAs) which is then smoothed 16 periods. You can’t replicate the 3/10 in StockCharts but you can get close with the MACD.

    The 3/10 Osc is a momentum, trend, and swing indicator and cannot be interpreted the same way as the classic MACD.

  14. Charles Upton Says:

    Corey, thanks…I’m now in tradestation configuring MACD and I have:
    1. fastlength
    2. slowlength
    3. MACD length

    How should the values 3,10,16 be inserted in there? Again, thanks for helpin’ out man…

  15. Corey Rosenbloom Says:

    Charles,

    Yes, it would be the diff between the 3 (fast) and 10 (slow) which is then smoothed by the MACD Length of 16 (to give the red line). I don’t put much emphasis on the red line, caring only to emphasize the 3/10 differential (black line).

  16. Vasu Says:

    Cory
    here’s my obsetrvation :
    My fibonacci started connecting 05/19 and 11/21 .

    I came up with a confluence region for the following :
    (1) The 38% retracemenet was 1000
    (2)For 10 point box size point and figure chart, the long-standing bearish trend line is at 1000.
    (3) As you said the 20 day weekly EMA is at 1000

    with all these into consideration before the inaugural in a traditionally strong January I think S &P 1000 is a probably target .
    regards
    Vasu

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