Is the S&P 500 Headed for Bearish Territory?
Monday’s big drop in the overall market spooked investors and has given me mixed feelings too.
First, the chart for the SPDR S&P 500 ETF (NYSE: SPY) has a possible inverse head and shoulders pattern forming and that is a bullish factor. Unfortunately, a personal market indicator that I developed in 2009 just gave the strongest bearish reading so far in 2018.
Let’s look at the chart of the SPY first.
We see that the ETF dropped to the 270 level in early October and then bounced to the 281 level. This would be the left shoulder and the left side of the neck. The SPY then dropped to the 260 level and that would form the head of the pattern. It then jumped to the 281 level again to form the right side of the neck and has now fallen for three straight sessions and could possibly form the right shoulder in the next few days.
For the pattern to be completed we would need to see the fund bottom in the 270 area again and then rally above the 281 area.
There are a couple of factors that make me question whether or not it can complete the formation, but the most notable is how the daily stochastic readings just made a bearish crossover out of overbought territory.
The second factor is what I mentioned earlier—an indicator that I developed almost 10 years ago. I call it the market barometer and it came about from some scans I have run every night for ten years now. The scans produce a bullish and bearish list for me each night and then the total results of those lists are included in the barometer. The scans look at a number of technical factors including the RSI, the stochastic readings, volume, etc.
Without giving away too much proprietary information, the barometer’s reading last night was -107 and that is the worst reading it has produced this year. The two lowest readings prior to last night came on January 25 and April 20.
The blue line in the chart is the S&P 500 and the orange bars represent the barometer readings. The two lowest readings that I mentioned above are circled in blue with yesterday’s reading also circled.
Those readings in January and April both came just as the S&P was getting ready for a pretty sizable drop.
This is why I say I have mixed feelings about the overall market right now. On the one hand, you have a possible bullish pattern developing, but on the other hand an indicator I developed is telling me that the market is getting ready to head lower again.
SPY sees MACD Histogram just turned negative
SPY saw its Moving Average Convergence Divergence Histogram (MACD) turn negative on April 01, 2024. This is a bearish signal that suggests the stock could decline going forward. Tickeron's A.I.dvisor looked at 49 instances where the indicator turned negative. In of the 49 cases the stock moved lower in the days that followed. This puts the odds of a downward move at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on April 04, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on SPY as a result. In of 63 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
SPY moved below its 50-day moving average on April 15, 2024 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for SPY crossed bearishly below the 50-day moving average on April 19, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 13 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where SPY declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The RSI Indicator points to a transition from a downward trend to an upward trend -- in cases where SPY's RSI Oscillator exited the oversold zone, of 27 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 7 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in of 358 cases, the price rose further within the following month. The odds of a continued upward trend are .
SPY may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The Aroon Indicator entered an Uptrend today. In of 451 cases where SPY Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
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