There’s an old Wall street saying that goes like this: “Topping is a process, not an event.”
Volume today was 1.7billion shares on $SPX compared to 2.1billion shares on August 23rd. I’m going to discount this light volume due to pre-holiday trading, which is generally light to begin with. I expect volume tomorrow to be even lighter as many traders will be heading out to Fire Island to celebrate the last weekend of summer. However….
On the daily chart of $SPX below you can clearly see a number of problems.
First, there’s the dashed blue line, which is the original trend line that is anchored on the June lows. For the first time since late July, $SPX closed below this trend line today. The lower, red trend line is the redrawn trend line that I put in place to accommodate the outliers.
Next there is a bearish X of the 5EMA down through the 10EMA. It’s not a big break but that’s how these things start.
Next, there’s the ‘sell’ signal in the 20,20 stochastic that came around the 22nd and continues to self confirm as the sto moves further away from the signal line.
Next, the fast moving 5,3,3 stochastic, which had recently given a buy signal, had a bearish X today.
Next, the DI lines had a bearish X today. This is important because while this is bearish to begin with many traders will wait to see if $SPX will close below today’s low which would then confirm the DI sell signal. So a close below 1397.01 before a close above today’s high of 1410.08 would confirm this sell signal. Could come tomorrow.
Then there are the Aroon bearish X and the break of rising trend line on the RSI.
Bottom line: This is not a happy chart.
Bottom line # II: Needs confirmation.
On August 23rd I was pretty sure that the market had topped out and it was into the abyss, but I also said that the mad men at the helm could take it all back, which is exactly what they did on Friday the 24th. I don’t think that’s what’s going to happen this time. Instead, I think $SPX will close below 1397.01 sooner rather than later and then we’ll work our way down to 1354 and beyond over the next few weeks. But I could be totally wrong.
If you click on the chart, it will open in a new window.
Back in early 2000, in the days when I used to watch CNBC, they had an economist from MIT come on one of the shows. He was old and wrinkled and had bushy eyebrows. They interviewed him more to make fun of him than to take his thoughts seriously. Of course, back then, the market was going bonkers with QQQ trading at close to $100 a share and the dot com bubble was clearly never going to end. People were screaming “New paradigm,” all the time.
This old guy gave his views on the market and the bubble the market was in and the interviewer, who I think was Mark Haines, just kind of giggled at the silly old man.
At the end of the interview, this wise old economist said something that I will never forget. He said, “You either get out too early, or it’s too late.”