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S&P 500 – An Unconvincing Uptrend

by David G. Hawkins

Short Term - Daily Bars Chart

The first chart here is the daily bars chart thru the end of August. In my last two blog posts here, I've noted the S1 Foothill curve and the liftoff from it, which often portends an explosive new uptrend. And indeed there has been an uptrend since the liftoff started on July 25th. However, we see now that it is not "explosive" in the sense of accelerated, since the two pullbacks have come right down to and touched each latest S curve, the most recent such touch occurring on Thursday of last week. If this were accelerated, the pullbacks would not come down even close to the S curves, and we'd be able to apply the TopFinder algorithm to estimate the coming extent of the uptrend. But with the behavior we're seeing, this uptrend is just meandering along and could end at any moment.

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Accumulation/Distribution

The second chart here is a daily bars chart showing my favorite accumulation/distribution indicators, about which I have blogged here some time ago. When the MVPT curve diverges from the price, it tends to be a leading indicator of price movement. Since the start of the current longer term uptrend in June, MVPT has been drifting down from price, suggesting that, behind the scenes, the market is weakening, in spite of the upward movement to date. Reinforcing this are the two traces in the upper pane. The green curve is the 33-day moving average of the number of shares that are traded during up days, the red curve being the one for down days. The normal behavior is to have green above red during up trends, and the opposite in down trends; and indeed that was the case up thru June. But after June, all during the current up trend, red has remained stubbornly above green. This is the clear, classic indication that the "smart" money is distributing out of the market even as price rises, and usually is a leading indicator of a coming reversal in the market. This analysis can't tell us when the market will reverse, but it does say that the sentiment has turned downward, and will be followed by a significant down trend.

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Long Term - Monthly Bars Chart

The third chart here is the monthly bars chart of the long term behavior of the market. Since the market bottomed in March of 2009, we've had an up trend with a sequence of three higher highs and higher lows, separated by deep pullbacks. The 2nd high was much higher than the first, but the 3rd one was only modestly higher than the 2nd. And now, the market seems to be meandering around this 3rd high. To my eyes, it looks like this long term uptrend is loosing steam.