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Consolidation

Three weeks ago my market risk indicator signaled which caused me to change the portfolio allocations to an aggressive hedge. After the decline into the August 25th low the S&P 500 Index (SPX) has been consolidating…although in a very wide and loose fashion. The current rally is consolidating the steep losses after the break of 2040 on SPX. As a result, the most likely resolution will be a break lower sometime in the next few weeks. However, my expectation is that the short term triangle from daily closing prices will be broken to the upside before the market ultimately turns lower.

150911spxLine

Looking at a point an figure chart which removes the linear time scale shows the consolidation and volatility much more clearly than a line chart. The current down trend line is on target to meet price at about 2000 on SPX which should provide some resistance.

150911spxpnf

The 50 day moving average for SPX is also on a trajectory that should meet price near the 2000 level as well. The price action at that level will be extremely important. But as I mentioned above, the most likely intermediate term resolution is down.

150911spx

Over the past week all of my market health indicator categories improved. The detail indicators all look like they’re bouncing and turning up from very oversold levels. None of them have made it back to moderate readings yet. This is one of the things that indicate more time (and most likely lower prices) will be required to repair the damage done to technical indicators when 2040 on SPX was broken to the downside. Long story short, it’s still time to be cautious.

150911MarketHealth

 
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One Response

  1. David White

    Great analysis on your consolidation piece! I agree with u completely. My proprietary trading system is setting up for a short signal at market close thurs 9/17…after the FOMC decision. I see some bullish action in the meantime with resistance in the 2000-2010 range as u pointed out also.

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