S&P 500 TESTS BROKEN RESISTANCE AS MACD WEAKENS -- FEWER S&P 500 STOCKS EXCEEDED THEIR 200-DAY SMAS -- MACD TURNS DOWN FOR THE EUROPEAN TOP 100 INDEX -- STOCHRSI REMAINS BULLISH FOR THE EURO
S&P 500 TESTS BROKEN RESISTANCE AS MACD WEAKENS... Link for todays video. The S&P 500 is at its moment-of-truth of truth as it tests broken resistance and MACD rolls over. Chart 1 shows this benchmark index breaking above 1425 and this level turning into support over the last five weeks. $SPX fell over 2% last week, but finished right at support. A break below this support level would argue for a deeper correction. The August 2011 trend line marks a potential support level in the 1340-1350 area. Even though this seems like a drastic decline, note that the index fell around 200 points in May-June 2010 (ten weeks), 100 points in May 2011 (six weeks) and around 125 points in May 2012 (five weeks). Yep, it can happen quickly.
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Chart 1
The indicator windows shows MACD(5,35,5) and the MACD-Histogram. First, notice that MACD(5,35,5) moved below its signal line over the last two weeks. This signals that upside momentum is weakening. The MACD-Histogram is shown with horizontal lines at 5 and -5 to filter signals. Keep in mind that the MACD-Histogram measures the distance between MACD and its signal line. A move above 5 means MACD is over 5 points above its signal line. A move below -5 means MACD is over 5 points below its signal line. These levels mark the bullish and bearish thresholds. More importantly, these levels filter signals by insuring that MACD exceeds its signal line by a certain amount. The red dotted lines shows the bearish signals, while the green dotted lines show the bullish signals. The MACD-Histogram is currently on a bearish signal with the move below -5. However, remember that the week is only a few hours old. The current bar could still change between now and Friday. Chart 2 shows the S&P 500 Equal Weight Index ($SPXEW) with the same indicators for reference.
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Chart 2
FEWER S&P 500 STOCKS EXCEEDED THEIR 200-DAY SMAS... The percentage of stocks above their 200-day moving average is a breadth indicator that measures the degree of participation. In particular, chartists can compare this indicator with various peaks in the S&P 500 to measure the degree of participation. Chart 3 shows the S&P 500 %Above 200-day SMA ($SPXA200R) in the main window and the S&P 500 in the indicator window. The S&P 500 moved to a new high in March, but the indicator peaked around 88%, which was below the 2011 peak. This bearish divergence was not a big deal until the indicator broke support in early May. Fast-forward to September and another bearish divergence formed as the indicator failed to reach the March high. This bearish divergence is a concern, but we have yet to see an actual breakdown in the indicator. The late August low marks support at 65% and a move below this level would reverse the uptrend. The blue dotted lines mark prior support breaks.
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Chart 3
Chart 4 shows the Nasdaq 100 %Above 200-day SMA ($NDXA200R) forming a sharp bearish divergence from March 2011 to September 2012. The March 2011 peak was around 88% and the September 2012 peak was around 70%. Notice that the indicator broke support levels twice over the last few weeks and moved below 50% last week. This double support break looks similar to the April-May support breaks.
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Chart 4
MACD TURNS DOWN FOR THE EUROPEAN TOP 100 INDEX... The market may also focus on Europe this week because there is an EU Summit on Thursday-Friday. So far, European stocks and the Euro are holding up and have yet to breakdown. Heres what to watch in the coming days. Chart 5 shows the European Top 100 Index ($EUR) surging to its March highs and then consolidating the last nine weeks. A consolidation within an uptrend is normally bullish and a break above the consolidation highs would signal a continuation higher. Sometimes, however, these consolidations break the other way and we get a reversal on the chart. The August-September lows mark a clear support level to watch. A break below these lows would reverse the five month uptrend.
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Chart 5
The indicator windows show MACD(5,35,5) and the MACD-Histogram (5,35,5). I changed to default settings because this is a weekly chart and I wanted a more sensitive oscillator. MACD(5,35,5) rolled over and broke its signal line over the last three weeks. This downturn and break are not bearish just yet though. The lower window focuses on the MACD-Histogram, which measures the distance between MACD and its signal line. The horizontal lines are set at 1 and -1 to filter out smaller moves. A signal line crossover that exceeds 1 point is deemed significant. Crossovers that do not exceed this threshold are considered noise. The red dotted lines mark significant downturns, while the green dotted lines mark significant upturns. The MACD-Histogram is currently at -.926 and has yet to cross the bearish threshold (-1)
STOCHRSI REMAINS BULLISH FOR THE EURO ETF... Chart 6 shows weekly prices for the Euro Currency Trust (FXE) with 14-period StochRSI in the indicator window. StochRSI is the Stochastic Oscillator formula applied to RSI values. As the momentum of momentum, it is basically RSI on steroids. The cup is half full when StochRSI moves above .60 and half empty when it moves below .40. Chartists can use the centerline (.50) for signals, but whipsaws will be reduced when adding a .10 buffer to bullish and bearish signals. As the chart now stands, StochRSI is bullish and the Euro ETF is stalling around the 128 area. The trend since mid July is up and chartists can mark support at 127. A weekly close below this level would reverse the uptrend in the Euro. Look for StochRSI to confirm with a break below .40 (the bearish threshold). With the Euro and stock market positively correlated, such a move would be bearish for stocks. Chart 7 shows the Euro Index ($XEU) for reference.
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Chart 6
