The Week in Crayons

As has been the norm throughout this year, the markets stair-stepped just a bit higher yet again this week after a couple of half hearted attempts at a pull back were once again met with strong buying. While the pervasive dip buying has stymied any attempts at a substantial price correction, momentum continues to wane as we slowly squeeze upward in the broad market indices. As has been the case for several weeks now, we remain extended, overbought, and at resistance, yet the trend is unmistakably up and should be respected until proven otherwise. So where exactly does that leave us? Continue to respect promising setups on individual names but manage each trade tightly and make sure not to let profits evaporate as there is substantially more risk versus rewards right now in the broad markets as we explore the area above last year’s highs.

The waning momentum in the broad markets can be seen when we examine a chart of the e-mini futures contract for the S&P 500. Stochastics continues to maintain an overbought reading as has been the case for much of the last quarter but is now hooking down and heading lower showing that price action is getting very tired at the moment. Also notice how the candles in our Momo Trend Bars have been printing more neutral to bearish colors with each move higher on this year’s stair step rally. However, although upwards momentum continues to weaken, the fact remains that the overall strend is strongly up at this time and has yet to show any conclusive evidence to the contrary. In fact, price action on the S&P 500 has yet to even touch the 20 day moving average to this point as each small drop has been quickly bought up propelling price higher.

Watch the interaction between this key moving average and price action over the next week or two as it is likely to become a strong magnet until the two inevitably meet again. Several key areas of support besides the rising moving averages have developed as a result of this years orderly move up and become obvious candidates to support price if we enter a more substantial price correction in the near future. Watch the floors of each of our “stair-steps” around 1276,1300,1330 and 1350 or so to become points of interest for the more patient dip buyers to become interested. In the event of another move up in price into next week, look for another stair of about 20-25 points to puts us just under the big round number of 1400. This would be a huge psychological level that is not likely to give way easily considering the already extended nature of our current move.


As I have mentioned repeatedly this year, we remain in the same basic environment for almost three months now, and traders should recognize the status quo and assume it will remain the same until proven otherwise. However, as has been the case for a while now, momentum is waning and traders should exercise caution when entering trades and strongly avoid chasing moves they may have missed.
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Posted in Charting & Analysis, Charts, Commentary, Futures, General Trading, Stocks