So I need to play a little catch up here. The market has had a couple of good days in a row and was off a little today with some mild profit taking. The S&P 500 finished down 5 to 1683. The bulls have performed admirably and have taken the market to the exact place it needs to go: north of 1680. This is where I think we will see a shift in momentum back to the bears. I do not think it will happen all at once, since my expected move will reverse a trend that took a while to materialize.
The attached chart is a monthly one. As you can for the first half of the year we pretty much went straight up. However, we have traded sideways since early summer and have seen diminishing strength as a result. The chart illustrates how after peaking in mid-May and then again in late July, the market pulled back to the 26 period EMA. This EMA is the longer term of the two and represents the “last stand” for the bulls. Each of the two previous two times it has bounced higher. However it has done so on diminishing momentum designated by the MACDh. From the looks of the current move we will not break into bullish territory (above 0) on this trip. On average this is a very ominous sign. Without momentum the “desire” to push ahead is reduced and the risk is to fall backwards.
I expect the market to make a run at 1700. If we get to it, surpass it and hold for a couple of days I will re-evaluate. But the limited upside of this move that started two weeks back has always been on my mind. 1700 is the must hold level for the bulls. If it fails, the distance that we have already traveled on the downside (~1630) will probably seem small compared for what is to come.