With the RSI on the monthly chart now at 76 and likely to go a bit higher before the end of the month, one has to be on the look out for a pull back at any time. The upper channel line has repelled the SPX several times in the past and may do that again.
The RSI on the monthly charts has only reached levels in the upper 70's twice before in recent stock market history and those times were 1999/2000 and in 2007. While I'm looking for a healthy pull back from the 1830 area, there's always a chance that a pull back from that area could turn into something more sinister. But who can really say? The SPX may just blow right through the upper channel line and keep on going. We won't know that until sometime in January 2014.
GL in the week ahead.
Comments
SimGlenn
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Thanks Curtis. I appreciate that you share your knowledge and experience. Best Wishes.
CurtisM
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SimGlenn, If SPX in the monthly time frame should break out of the current long term channel and especially if SPX should rise to the next Fib expansion target at around 1900, then the current upper channel resistance line would then become a support line. However, should this occur then I think a redraw of the price channel would be necessary to establish a new channel. I think I would root the channel at the base of the January 13' candle and go from there.
SimGlenn
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Curtis - The current SPX trend pace is about 1 SPX point per calendar day. This has continued for about 1 year. If the trend slope steepens so as to break the upper channel (near 1850), is it possible to then establish a new trend channel at the steeper trend?
CurtisM
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SimGlenn, I don't know anything about 1,3,5 year trends. Actually never heard of these before.
As far as the current situation goes, I'm surprised that SPX has stopped at the upper channel line on the monthly chart, or at least seems to have stopped at the upper channel line for now. If we don't get a snap-back rally Friday or within a reasonable amount of time, then there's a chance SPX will drop below 1800, round number support, and then down to the mid-line of the channel somewhere around 1750. If we should drop below 1750, then there would be a chance we'll see 1700, in the area of the lower trend line on the monthly chart. IMHO, only a decisive break of that lower trend line has the potential to signal a lasting trend change so maybe that's the answer you're looking for. We're a long ways from SPX 1700 and as of right now there's no way to know if we'll ever get anywhere near there before the market decides to reverse and head to new highs.
GL
SimGlenn
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Hi Curtis - Excellent analysis. I have been learning trend channel analysis this past year and have been analyzing the 1,3, and 5 year SPX channels. Y/E 2013 saw a move right to the 1850 upper channel and close there. A truly great close to a great year. The concern I have is that the SPX is right near the 1, 3, and 5 year upper channels. This does not leave much room for market gains without breaking trend.
I'm tempted to assume the 1 year trend takes precedence over the 3 and 5 year, if there is a break in trend above the 3 or 5. I'm reluctant to make that assumption and ignore a potential 3 or 5 year break, precipitating a correction toward mid-channel.
Can you tell me how to properly evaluate a potential valid and lasting trend change?
Thanks - Glenn
stockSMASH
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Good Morning CurtisM Happy Holiday! I sent the link that should work this time... a few letters were missing. apology... On the weekly, my red line was breached, only for the market to rip back up through it. However, statistical probability is high that even when breached, a hole is made and pullback is inevitable... so once on the daily that red line is breached, market will pullback, perhaps a fade, test up to red line... but pullback first to BBand midline on daily,,, and then... this time... perhaps much more as you suggest. The slope of the RED LINE suggests the pullback will have lots of energy. Everybody and their mother thinks that this market is ONLY going UP, even my neighbors!... and history in the past 20 years shows that market drops when they are bullish! LOL they had this same extreme sentiment in 2007. I will let you know when my red line is breached on the daily... especially watching IWM... and ask for your opinion which is very much valued. Talk at you tomorrow !
biff, thanks for your comments. BTW, the link you provided did not work.
stockSMASH
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Hello CurtisM - you have SOUND ideas and careful analysis. Thank you for sharing. This Market is going to pullback... in the next weeks...there is little doubt...with your monthly RSI observation and. THE SKEW indicator is at extreme... 143 yesterday it has only been that high 3 other times since 1990 EACH with a big pullback... not necessarily 'the' major Correction... but a 4-7% pullback. High levels have been seen in the past weeks over 130... but over 140 is the jugular cut to end this party for now. There may be a delay of a few days... but into 2014 .... wooosh to the downside and some selling ... thoughts? PLEASE see... quandl.com/CBOEFE-CBOE-Futures-Exchange/INDEX_SKEW...