Since peaking on December 13, 2016, the S&P 500 index has basically done nothing … bulls had been saying that the market was waiting for the bank earnings to be reported and that would be what allows the market to blast off on its next move. It appears that is not happening right from the get go of those earnings reports. Now those same pundits are saying that we are just waiting until after the Presidential inauguration this Friday – after looking at the daily chart for the SPY ETF, I would have to agree that a bigger move is coming and probably coming soon.
S&P 500 Index ETF (SPY) – Daily Chart
The daily chart is clearly in an uptrend since the US Presidential election in early November … until we get a break of the daily ATR support level and a confirmation of that break, I would have to say that traders need to stay bullish as we make our way up to Francisco’s Elliott Wave 2017 targets (2350 and 2625ish). Having said that, while we wait for the next expansion move higher, the market is trying to confuse traders with the sideways price action and the “bearish” looking indicators that tend to form in that type of price action.
The first of my “bearish” indicators here is my 20SMA line – it is just about to cross below its 8SMA signal line ($225.88 vs $225.85) … I use cross-overs of the 20SMA on the daily chart as a general possible early trend change warning signal.
The next indicator that is trying to confuse short-term traders is the Volume Zone Oscillator (VZO) … this indicator is riding right on top of the zero line which separates bullish and bearish price action. We just crossed below the zero line, and the bulls need to see this get back above zero here soon.
The price momentum and squeeze indicator has us in the 9th day of a price squeeze … expansion follows contraction, so get ready for some bigger intra-day moves here soon.
Next is the Moving Average Spread indicator … this indicator crossed below its signal line on December 27th, and has been hugging this line since then. If price action is going to turn bullish, this indicator needs to cross back above its signal line. If it begins to separate from the signal line, that would confirm a more cautious/bearish posture for short-term traders.
The Directional Indicators have been crossing back and forth several times over the past month … that is typical of a range style consolidation. The DI- indicator has however, just crossed back above the DI+ indicator and crossed above the 25-level which I regard as the threshold for when a price trend is possibly trending.
Finally, despite all of those confusing signals, I always like to default back to the price action (which is bullish and calling for a continuation move here soon) and my trend strength histogram – the histogram has pulled back from its mid-December peak and is now just a couple of points above the “official” contraction warning (< 0). After you get a strong move higher followed by a sideways consolidation, this histogram is a great tool to time the beginning of the next move out of that consolidation. To me, we are within days of starting the next move in the market.
Bottom Line – Despite the few chart indicators that are a little bearish here, the bigger picture is that price has made a bullish expansion move higher followed by sideways consolidation … traders need to stay bullish here as odds are good that we get some type of expansion effort higher out of this sideways chop. The trend strength histogram is telling us that we are within days of the expansion, so keep your eyes open on the medium term charts to get a good signal of when that expansion is beginning in earnst.
Cheers … Leaf_West