Wednesday, June 27, 2007

Stock Market Concern: S&P 500 at risk?

Currently, the S&P 500 (using index $SPX) has traded the last few days underneath the 50 day moving average, which is bearish. However, it has not gone below support of around 1488. Just by looking at these two levels, the S&P 500 could trade between resistance and support.

However, there are some things to be concerned about.

  • As the S&P 500 hit both recent tops, the number of S&P 500 stocks that are above their 50 day moving average has decreased. Currently, only 40% of the stocks are above the 50 day moving average. All of these are not good signs. (In a later post, we can discuss in more detail using the $SPXA50R as a contrarian indicator. If the $SPXA50R goes too low, that might be a bottom). In the chart above, the $SPXA50R is listed in upper window.
  • Williams ADX is a technical indicator to evaluate the strength of the current trend. In the chart above, the Williams ADX is in the lower window. The Black ADX line says whether the stock is trending or not. Readings below 20 mean there is a weak trend, and ADX above 40 is a strong trend. In the case above, the ADX line is rising up from under 20 and is moving above 20, suggesting a strengthening trend.
  • Using William's ADX, when the Red -DI line goes above the Green +DI line, that is generally a sell signal. Of course, this line should not be used by itself. There are many systems which use the +DI/-DI crossover, and many try to keep the trader from getting whipsawed in and out of an index or stock. The crossover often is used in conjunction with the ADX line. In the chart above, we do see the -DI line going above the +DI line, and the ADX line looks to be rising to the 20 level, which suggests a bearish trend may be strengthening.

In conclusion, the S&P 500 is stuck between the 1488 level and resistance is the 50 day moving average. Trading underneath the 50 day moving average for several days is negative in itself. While the $SPX has not breached the resistance level with good volume, there are still different concerns with the market based on the negative divergence using Stocks Over the 50 Day Moving average, and Williams ADX.

If the levels don't hold, then maybe the predicted ABC correction may still occur.

Current Chart Update

To look at the chart on a day to day basis, use this link.

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