Why Friday’s Advance Can’t Be Trusted

tdp2664
InvestorPlace
One of my favorite technicians is fond of saying, “This market is extremely technical.” I currently agree with that assessment as the market, regardless of economic, political and social upheavals, along with earthquakes and tsunamis, is trading within a very pronounced technical pattern of support and resistance numbers and zones. The market appears to be solely dependent upon the supply and demand for stocks. So let’s briefly review the current technical picture. Here is the S&P 500: Note that there is a broad support zone of 1,290 to 1,330 (red lines), and then focus on the high of March at 1,332 (black arrows). For the bulls to turn the market positive, they must penetrate and hold the 1,332 line. They broke above the line in early April, but quickly faltered, falling back to the 50-day moving average (blue line). Momentum (lower right in black) is negative, meaning that the balance of power is pushing against the bulls. But Friday’s rally, which pushed the 20-day moving average (green line) over the 50-day moving average (blue line), is a short-term buy signal. However, this occurred on an options expiration day and, thus, is not a reliable signal. This may be the start of the dead cat bounce mentioned last week. Conclusion: The S&P 500 must break and hold above the 1,332 line in order to neutralize its intermediate downtrend. Until that occurs, the best the bulls can say about the index is that the trend is neutral, but with a lower high at 1,340 versus 1,344. My opinion is that the intermediate trend is down.