Saturday, July 20, 2013

Market Update: Analysis of the short and long term trend, S+P 500 and Dow...

This week we saw continued strength in the major averages. Both the Dow and the S+P 500 traded to new all time highs. The chart (60 minute) above depicts what I believe to be the short term trend of the S+P 500. Our first trading range became the initial rejection of prices below 1600 as we retraced back above and into the 1620's. Normally an equal sized move from the last swing low becomes the first minimum target, in this case we blew through that to the upside. That makes the next and usually the maximum upside target, the projected top of the next trading range which is computed by adding the full amount of the previous box trading range to the high of the range left behind. This equates to about 1693.50 on the S+P 500.
I think it is likely we see a retracement back down into support either from here or maybe after a test of 1700.  I have marked a couple levels which should come in as support, they are derived from taking the midpoint of the current trading range and matching them up to previous short term swing highs.
Taking a look now at the Dow short term chart, we can see a very similar setup taking place. It's projected upside target has not quite been reached just yet, so there is room for some potential upside which could coincide with a test of 1700 on the S+P as well.
Now keeping in mind the longer term trend and the potential upside resistance that awaits us. If you recall this chart above from last week. I believe all signs point to an eventual swing high being put in somewhere around the above mentioned zone. I think it's futile and probably foolish to attempt to pick a top in a market like this, but I believe it's also good to have targets for all your trades/investments along with having price levels to be cautious when approaching. Once these upside levels are achieved I will begin to elaborate what we can expect for downside potential if these levels do produce strong resistance and a failure of the short term trend.

Lets take a look "under the hood" once again at one of my favorite indicators. This is one of the reasons why I believe a short term retracement to support is entirely possible. As you can see the cumulative advance-decline line is still below it's May 22nd top as the S+P 500 has exceeded it's. It's a minor divergence that after having a relatively uncorrected rally deserves some attention.

Finally let's take a look at the sector performance, the top chart shows 1 month performance. On it we see many of the cyclical sectors outperforming with a rebound in Utilities as well. The bottom chart shows year to date performance with Health Care leading the way along with the cyclical sectors. After this weeks performance in names like Microsoft, Intel and Google, the tech sector finds itself near the bottom of the list.