The S&P 500 Index (SPX)

Is The S&P 500 Index Ready To Begin A Correction?

Posted in The S&P 500 Index (SPX) on April 7th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With earnings season about to begin, the technical set-up for the S&P 500 Index (SPX) suggests that correction is entirely likely. The problem is that many investors appear to be expecting that event to occur, which might be just the reason that lessens such an outcome. Nevertheless, weekly stochastic oscillators are in an overbought condition with weekly MACD studies (Moving Average Convergence/Divergence) diverging bearishly. Moreover, key channel-top resistance sits just above at the 1,905 level.

Another interesting point to remember is that the guidance of many firms has been lowered for Q1 due largely to weather related issues that in truth have acted as a drag on many segments of economic activity. Further, a rolling rotation out of momentum stocks and into defensive sectors has trimmed some of the speculation that was very visible to most investors.

Another wrinkle to consider was that comments made by Fed Chair Janet Yellen in March appeared to reflect a much more dovish stance than was expressed by her earlier in February. As a result, the expectation for any meaningful rise in interest rates may have been pushed to the much renowned back-burner.

What are investors to do? Corrections are necessary in order to dissipate some of the froth that accompanies excessive bullishness. That being said, it might well turn out that the rolling rotational out of high beta stocks and into defensive positions might well be acting as a proxy for a full fledged pullback.

Of course Q1 earnings, as well as a set of fresh guidance parameters will likely be greeted with great interest by investors just as the month of May approaches. What is that old saying? Sell in May and go away? Perhaps, if key trend line support currently sitting at the 1,800 level gives way to increased selling activity.


S&P 500 Index Again Takes Aim At Key Channel-Top Resistance

Posted in The S&P 500 Index (SPX) on March 3rd, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After shaking off the modest 6% correction of January, the S&P 500 Index (SPX) has reversed higher and is again approaching a test of long-term channel-top resistance currently sitting at 1,880 (but rises over time). From a technical perspective there is a big different from the current set-up and its prior channel-top challenge of December 2013. Back then, weekly technical oscillators including stochastic studies and RSI (Relative Strength Index) were each in an overbought condition with weekly MACD (Moving Average Convergence/Divergence) rising bullishly. At the moment however, those technical measures now show that weekly stochastic studies are currently on a sell signal with MACD declining bearishly. In addition, RSI is rising bullishly and is strong but is not in an overbought condition.

What does this difference mean? It suggests that while the current price-action is bullish, it does have a bearish drag to it. However, by the time that the next challenge to channel-top resistance does occur, the chances of an upside break will have oddly increased due to the absence of an overbought condition. That does not mean however, that the odds are good, they are just better.

Nevertheless, U.S. equities remain attractive to global investors due to reasonable earnings growth expectations. Recent signs of a pick-up in consumer loan activity have added to the optimism for growth. Further, equity prices in the U.S. have put in an impressive showing in recent weeks despite worries over growth expectations in China and Europe, and a sub-par Q4 GDP performance in Japan. In addition, political turmoil in Ukraine, Thailand, Venezuela and Turkey have barely dampened stock purchases in the U.S. (compared with contagion worry that impacted equity valuations during the debt crisis in Greece that began in 2010).

As a result, a test of key channel-top resistance currently sitting at 1,880 (but rises over time) will likely be of major importance to both investors and trend followers alike.