Another Monday, another all-time high struck for the S&P 500. The benchmark index scored a pierce through the 2000 mark on an intraday basis before closing the day 2 points shy of this level. However, the bounce off the early August lows still is taking place on waning upside momentum, and that at the margin speaks against chasing stocks higher for the time being.
What was the motivation behind Monday’s frolick?
Two words: Jackson Hole.
While both Janet Yellen and Mario Draghi spoke last Friday at the economic symposium in Jackson Hole, Wyoming, it was too late in the week for traders to bother reacting to. Come Monday morning, however, European stocks woke up with a pep in their step as they reacted to the dovish reiterations by ECB head Mario Draghi, which in turn spilled over into U.S. equities.
When I last discussed the state of the S&P 500 — more specifically, the state of the SPDR S&P 500 ETF (SPY) on Aug. 6 — I said the following:
“From a tactical technical perspective, to declare a top in the market, what we need to see in coming days/weeks is either a lower high, a double top or breakout fake-out (a quick bearish reversal in price).”
Fast forward to Monday, and with the sharp 4.8% rally, the SPY has marginally broken past the previous July highs, thus favoring a so-called breakout-fakeout move above the 2000 area in coming days/weeks.
SPY ETF Charts
On the below weekly chart, note that the SPY ETF has once again reached the upper end of its multiyear trading range, while the relative strength index (RSI) at the bottom of the chart still is making lower highs, thus not (yet) confirming the higher highs in price.
On the daily chart, note that the August bounce off the 100-day simple moving average (blue line) also has pushed the stochastic momentum oscillator into overbought readings and the SPY ETF past lateral resistance (i.e. past the July highs). It’s no surprise that the 2000 area for the S&P 500 (and the 200 area for the SPY) has served as an upside attraction level, and given the forces at work, a marginal break past there toward $201-$202 is entirely possible in the immediate to near term.
The bulls will want the S&P 500 to consolidate near these highs for some time before a better chance meaningfully higher can present itself. The bears should be mindful of the aforementioned negative divergences between multiyear price and waning upside momentum, all in the context of a five-year-old-plus bull market and the nearing of the seasonally difficult month of September.
Odds favor a bearish reversal coming soon for the SPY ETF, which in turn could mark the charts with a breakout-fakeout move past the $200 mark that could push the index back toward the early August lows near $190 at the very least.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.