Weekly SP 500 Overview

With a wildly volatile week behind us, let’s step up the perspective and see if we can glean any information from the S&P 500’s weekly chart.

S&P 500 Weekly Chart:

Don’t we wish we could turn back the time to October 2007?  Alas, we have to take what we’re given in the market and do the best analysis we can with the information we have.

In terms of the top-down structure, we are in a clear weekly downtrend as evidenced by a series of lower highs and lower lows, which are confirmed by the “most bearish orientation possible” of the key moving averages (the 20 is beneath the 50 which is beneath the 200).  One should not look to get aggressively net long until this structure changes.  The ‘trend’ path of least resistance remains to the downside.

That being said, it ‘feels’ or seems like we are due for a (however brief) counter-trend retracement perhaps to test eventually the falling 20 week EMA, which would be an eventual target (though it clearly won’t happen next week unless something radically changes).  Notice how the market ‘swings’ from up to down in relatively stable ‘swings’ (for lack of a better word).  It almost feels like a rhythm you can trace out and measure.

This rhythm was evident and stable until the October 2008 market drop, when the downswing became so exaggerated and intense that the market made a near record percentage loss in a singular month.    Right now the ‘rhythm’ seems to be indicating an upswing (counter-trend retracement) is in order but is by no means guaranteed.

The momentum oscillator has registered an extreme new momentum low, registering beneath -150 last month which was quite remarkable (an indicator value exceeding that of the entirety of the 2000-2003 bear market).  The oscillator measures the difference between a 3 and 10 week EMA, so to have an S&P value of -150 is quite extraordinary.

The red and green arrows I’ve drawn represent swings that have come into ‘moving average support or resistance,’ particularly the case in August 2008 where price came into strong “confluence” resistance.  Pay close attention to price when it interacts with key moving averages, especially when they come into contact with “confluence” or cross-over zones of key averages as well.  Those can sometimes be major turning points in a market that are difficult to anticipate using other indicators.  Pay even more attention when candlestick patterns (such as dojis) form at these areas.

What’s up next?  There may be more risk short-term by being short the market, particularly if we do rise eventually into a counter-swing back up, but at the same time, do not underestimate the power of a pervasive down-trend.  “Surprises” often happen in the direction of the prevailing trend, but shorts must also be on guard against stunning short-covering rallies (short squeezes) such as we saw on the daily frames last week.

Regardless of your strategy, do be careful in your tactics and keep a close eye on your money management techniques and strategies.  Ultimately, those might be what save many traders in this uncertain environment.