MAJOR STOCK INDEXES ARE TRYING TO STABILIZE -- LONG-TERM CHARTS, HOWEVER, REMAIN A CONCERN -- WEEKLY AND MONTHY CHARTS OF THE S&P 500 SUGGEST CONTINUED STOCK MARKET RISK
DAILY S&P 500 CHART CONTINUES TO STABILIZE...Major U.S. stock indexes continue to probe for a short-term bottom. The daily bars in Chart 1 show the S&P 500 regaining some lost ground over the last two weeks after falling to the lowest level in three years. But there's still a lot of overhead resistance to deal with. The SPX remains well below its red 200-day average. And its blue 50-day average has just slipped below its red 200-day line. In addition, the flat red trendlines overlaid on the price bars show the SPX meeting some selling at its 38% Fibonacci retracement line. That's usually the first line of resistance after a market selloff. The 14-day RSI line in the upper box also remains below potential resistance at its midpoint line at 50. Longer-range charts also remain a big concern.
S&P 500 WEEKLY CHART...When studying major market trends, longer-range charts are usually more important than daily charts. That's because the longer-range charts are better at determining the major direction of stock prices. And right now those longer-range charts aren't very encouraging. Chart 2 plots a weekly chart of the S&P 500 over the last six years. There's some good and bad news on the chart. The 14-week RSI line in the upper box is deeply oversold. In addition, the SPX has managed to climb back above broken support formed near the end of 2018 (green trendline). While that's mildly encouraging, it's not enough to restore the potential technical damage done during March to the market's long-term uptrend. In addition, its weekly MACD lines (middle box) remain in a steep downtrend. And the blue circle shows its 10-week average falling below its red 40-week line for the first time in more than a year. All of which suggests there's a lot more healing that needs to be done for stocks to regain upward momentum.
SPX MONTHLY CHART...Chart 3 plots monthly bars for the S&P 500 over the last twelve years with its accompanying momentum indicators. The red circle shows the price decline during March falling below the rising support line that defined the 11-year bull market starting in 2009 (and its late 2018 reaction low). Those are potentially ominous signs that the longest bull market in history may have peaked. In addition, the 14-month RSI line in the upper box has fallen to the lowest level since 2009; and its weekly MACD lines (middle box) remain negative. Over the shorter run, the SPX is trying to climb back over its broken long-term trendline (and its 2018 low). But the overall look of the monthly price chart (combined with weak momentum indicators) doesn't paint a very encouraging picture.
PUTTING IT ALL TOGETHER... During my recent absence, I've kept a close eye on TV reporting of the stock market. What has surprised me somewhat is the apparent consensus among investment advisors and strategists that the recent stock plunge was not that serious, that stocks may be bottoming, and that investing strategies should remain pretty much "business as usual". I certainly hope they're right. But when I look at the weekly and monthly charts shown above (with weak long-term indicators), I can't help fearing that the current stock market situation carries the possibility for more volatility and weakness. And that it may take a lot more time to get the stock market back to normal. Which suggests that the current level of complacency may not be fully warranted. Once again, I really hope that I'm wrong and they're right.
