The ES overnight session is underway and is trading off ten points but above Friday's RTH low of 2577 the pivotal 2570 area. It looks kind of parabolic -- if you zoom out. A repeated idea is that the index it represents is going to reverse now that it has closed 10.64% over the Dec. low of SPX 2346.58. It is overbought on a short term basis going into an earnings season that could reflect the consequences of slower growth and a quasi-trade war. It was oversold on a longer term basis coming off the 26 December lows. Many bank analysts - the long term bulls - incorporate a retest of recent lows into their 2019 forecasts, thus frightening short-term participants. As we approach the October intraday low of 2603.54 on declining A-D and volume breadth, attention will be on US bank earnings and the week's immediate threats: Brexit negotiations and the temperamental stylings and potential liabilities of you-know-who. Note, ‘overbought’ and 'oversold' are kind of amorphous terms. They are time dependent. In these markets, 'time' can be kind of warped. Predictions can be correct -- but not always in time to satisfy strict entry/exit strategies or to offset losses for those who trade instruments that are prone to time decay. Monthly indices.
SPX is nearing the 50% retracement of the downtrend from 3 October and SPX 2643 but everyone and her/his dog is fixated on 2600. The top trend line that runs unbroken from October comes in at about 2710 if you go straight up from current price. That is roughly in line with the 61.8% retracement of the larger decline from 3 October. The old lower trend line (if you keep it) anchored at 8 November comes in around 2617 and is just under the 61.8% retracement of the decline from 3 December -- and a 50 day moving average that is now about 2635. SPX daily view.
Short Term Support
As of Friday's close, major weekly SPX support was near 2500 and still looks prominent. 2532.69 is the February 2018 low. Early this week 2550 is a higher point of support and there is a high initial resistance at 2650. That is a broad range but it gives an idea of how positioning defines weekly risk. Support/resistance structure can change mid-week but it has been sort of stable since the beginning of last week. 2570 is Monday's initial support while 2630 and 2640 are initial resistance points if the Oct low gets taken out.
Consensus
The market tends to disappoint most of the people most of the time. Will short-termers pay attention to short term oscillators that are pinned near their high points? Yeah, just as others will look at oscillators on longer time frames; and observe that mid-January is a point where residual tax selling could end and participants will be on the lookout for pension fund reallocation. That brings us to the levels above that come into play if the power of consensus provides theatrics for would-be bulls to exploit. Smacking or shaking the hive, they call it.
The VIX has fallen below 20.00 but as we have learned, history’s clichés and precise levels are not always useful -- especially when we are dealing with an unprecedented set of circumstances. They say history rhymes but we know that few circumstances past can live up to our present mélange of macro and political threats. The Federal Reserve voting members know this too. Some watchers feel that the Fed's fear of the unknown is the most potent threat to the bears; on a pullback toward 2400, one word about augmentations in balance sheet reduction or a firming resolve vis 'neutral rates' will leave every hollow log in the woods stuffed full of plump bears...still woozy from their fall and early-winter partying. Speaking of bears, there are some that visit me when the berries are out. They tend to be less aware of threats when they are nibbling among the thorns. They also make brief visits this time of year when they wake up grumpy and need a snack. I have not seen any this winter but I know they are there because I find their tracks in the snow.
Traders will be watching the Technology sector closely now because many feel that the Financial sector - rally or not - will not provide leadership necessary to keep this market aloft or prop it back up on any pullback initiated by nervous participants.
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