Two Months in an 80 Point Box - Where Next for the S&P 500? by Dr. Van Tharp Trading Institute Courses and Workshops
The bears can't get anything going. But then again, neither can the bulls. And so we have this sideways market for the last two months in a pretty darn tight 80 point channel.
Don't get me wrong - there have been plenty of big one day direction swings - and some of them are pretty wild as intraday traders can attest. The trader that I know best calls this a "pogo stick market".
If you had to pick who is winning, I'd have to say the bulls, but just by a hair. That's only because we're hugging the top of the page and the bears can't get this market to move more than 4% off the all-time highs. This chart shows that 80 point channel quite clearly in the gray box - which dates back to February 5th.
You can also see the very important 100 day simple moving average still holding as a very important support level. The very bottom line (under the price chart) shows the Average Directions Index (NYSE:ADX) indicator that calculates the 14 day trendiness (directional movement) of the instrument. The S&P's trendiness has been declining since late last year and you see that we're now at the lowest levels seen since last June!
It's Not Just the S&P 500 That's Going Sideways (Cool Chart Alert)
I haven't fed my appetite for a really cool chart on these pages for some time so let's fix that. The research-crazy folks over at Bespoke sent out this interesting, useful and yes, just plain cool graphic today.
The chart uses ETFs as a proxy for the major stock market sectors to show how close each sector's price level is to a moving average. The black dot represents each ETF's closing price in relation to a 2% band around its 50 day simple moving average (50 SMA). This week, the S&P 500 and the 10 constituent sectors that make it up were all less than 2 percent away from their respective 50 SMAs. And only healthcare moved outside of that range in the last week.
Since we are looking at relationships to the 50 SMA, I thought I'd take a look at an indicator that gives us some insight into both the technical and the sentiment pictures for the broader market. This is stockcharts.com's line graph showing the percent of the S&P 500 stocks trading above their 50 SMA.
You can see that as the volatility of the S&P closing price contracts (solid black line, top graph), so does the movement of stocks popping above their 50 SMAs (lower black & red line).
So we are in a serious range contraction with a market that is the most directionless that it has been since last June. One thing we know for sure - range contractions are followed by range expansions. This sideways wandering will end - and probably soon.
As I said two weeks ago, the 100 SMA continues to be a major line in the sand - a close or two below that level will most likely lead to more downside action. The longer, however, that the 100 SMA holds as support, the greater the likelihood is that we will bust out to the upside from this current sideways malaise.
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