One of the attributes of technical analysis is that it offers consistent tools to define and manage risk. The current SPX daily chart offers good illustration.
-The current rally is maturing at a significant resistance level created by prior support and resistance levels (February, March, and June). I think of this as a polarity zone.
-This is the polarity law: Previous support becomes resistance and previous resistance becomes support. Note that this zone was unsuccessfully tested in early June. The failure of that prior test is a warning sign.
-Oscillators (RSI and PPO) are showing signs of fatigue.
-PPO is percentage price oscillator. By presenting moving average levels as a percentage rather than a difference, it makes it easier to compare levels over time.
-The low level of the average true range (ATR) suggests complacency.
-There was an intraday bearish reversal (August 8th) to provide extra warning.
-Two well-defined levels for a pullback would be the 20d exponential moving average and the 50d moving average.
If those levels are reached, one would need to analyze market behavers and reevaluate their strategy.
By moving to the time frame of higher perspective (in this case the weekly) we see the market is also having to deal with yet another important ceiling.
In this case the almighty 30 weeks moving average (Stan Weinstein stages analysis) is acting as an important intermediate timeframe ceiling that also calls for a more cautious view. This is occurring with the weekly RSI moving into the 50 area (suggesting that the oversold has been adequately relieved).
Being fractal (using multiple time frames) is important in technical analysis. After using the microscope (daily chart) we use the macroscope (weekly chart) to see if we can obtain extra nuggets of wisdom from the big picture.
Net-net, the weight-of-the-evidence suggests that investors should be reducing their risk as the market is currently in a downtrend and has reached important resistance levels.
Eric Conrads, CMT, CAIA, CEFA Chartered Market Technician Zenith Capital
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in a worst case condition, it may complete another shoulder.. of half completed inverse head n shoulder pattern .. if it makes..
i think it may go up
steveme140
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Wrong. But nice try.
kosai19
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I like your analysis but I think you would really benefit from studying candlesticks. They show actual buying or selling at the levels to confirm the analysis. Remember, a level is only important if buyers or sellers react to the levels.
CMT_Association
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@kosai19, Hi. both charts have precisely candlesticks that give us the essence of the price move as well as a good sense of the momentum. In the case of the daily chart the bodies of the candles indicate trend fatigue with intitally an indecison DOJI one quickly followed by a shooting star that warns of a potential reversal. Smaller bodies add up to the analysis as it reveals to us an exhaustion of the force of the initial move.
kosai19
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@CMT_Association, Oh...I haven't seen you talk about candlesticks in some of your other analysis so I thought you weren't aware.
SquishTrade
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I'm confused by your comment. This author is an expert in technical analysis, so he understands candlesticks very well. He focused on certain technicals that supported his perspective, right?
Also, it would seem your comment supports his thesis. He identified major resistance levels for the present rally. And price definitely responded to that level -- as you say "sellers and buyers" reacted quite noticeably yesterday, right?
kosai19
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@Burning-Theta, I haven't seen him talk about candlesticks so I thought he didn't use them. Also, my comment was more about responding currently, not past responses. The greater the number of past responses the more reliable that there will be a future response. But that in my opinion is not enough to enter a high probability trade. Have to see the current test with good candlesticks to support a reliable entry.
SquishTrade
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@kosai19, I see your point, thanks for responding :) Have a good week.