The Sideways move in S&P 500 Continues
It is common that market is soft whenever a higher time frame Doji candle forms after a sizeable move higher. This has happened in several occasions over the last seven years and the investors should pay attention. For traders however, this means usually more opportunities as the lower time frames tend to have more price fluctuation. We have plenty of economic releases today from the US, which should help the traders in that regard and cause more volatility in the market. We have import and export data, business inventories, Fed Beige Book, Crude Oil Stocks Change but the most interesting and the publication of Retail Sales data, an event that has potential to move the markets the most. The analysts are expecting the figure to come in at -0.1%, which is considerably lower than the previous 0.7%. A strong deviation from the expectations should move the market significantly and create more opportunities to trade the market.
S&P 500, Monthly
Trend wise the market is still inside the rising regression channel, even though it has had one move outside of it in October last year. The last completed candle from December is an interesting one. The long term stock market Bulls don’t really want to see something like this developing in the world’s most important stock market, especially not combined with a plunge in the price of copper (down almost 5% today). The December candle is what’s known as a Doji, a candle with open and close near to each other. When such a candle appears after an uptrend we know one thing: the demand and supply were in balance. In other words the bulls were not in control anymore. The last time a similar monthly candle appeared after a long uptrend was in October 2007. Then the candle marked the end of the previous bull market. Is it likely that the Monthly Doji candle will again turn the market lower? The importance lies in the price action over the coming two months. If we get lower lows and lower highs followed with increasing volatility, then the probabilities of uptrend being over are much higher. We don’t yet know if this will be the case, but what we know is that the market usually corrects lower after these kinds of candles after the market has been trending higher.
The RSI has been overbought since the beginning of year 2013, which is what often happens in a strong uptrend. Now RSI is breaking below a level of 66.58 that has supported the index in August 2013 and January 2014. The RSI has also diverged from the S&P500 with lower highs while the stock market has been moving higher. This is known as bearish divergence. The nearest monthly S/R levels are at 1961.50 and 2088.75 and a couple of Fibonacci levels cluster at 1845 – 1832. This is not much of a cluster but the fact that they coincide with a monthly low from October makes the level between 1813 and 1845 significant.
S&P 500, Monthly
Trend wise the market is still inside the rising regression channel, even though it has had one move outside of it in October last year. The last completed candle from December is an interesting one. The long term stock market Bulls don’t really want to see something like this developing in the world’s most important stock market, especially not combined with a plunge in the price of copper (down almost 5% today). The December candle is what’s known as a Doji, a candle with open and close near to each other. When such a candle appears after an uptrend we know one thing: the demand and supply were in balance. In other words the bulls were not in control anymore. The last time a similar monthly candle appeared after a long uptrend was in October 2007. Then the candle marked the end of the previous bull market. Is it likely that the Monthly Doji candle will again turn the market lower? The importance lies in the price action over the coming two months. If we get lower lows and lower highs followed with increasing volatility, then the probabilities of uptrend being over are much higher. We don’t yet know if this will be the case, but what we know is that the market usually corrects lower after these kinds of candles after the market has been trending higher.
The RSI has been overbought since the beginning of year 2013, which is what often happens in a strong uptrend. Now RSI is breaking below a level of 66.58 that has supported the index in August 2013 and January 2014. The RSI has also diverged from the S&P500 with lower highs while the stock market has been moving higher. This is known as bearish divergence. The nearest monthly S/R levels are at 1961.50 and 2088.75 and a couple of Fibonacci levels cluster at 1845 – 1832. This is not much of a cluster but the fact that they coincide with a monthly low from October makes the level between 1813 and 1845 significant.
S&P 500, Daily
The daily trend is sideways as I suggested some months ago. The price moved briefly to new highs in the end of December but has since formed a lower high and is now possibly forming a bullish hammer candle. The levels below the pivotal high from September last year (2014.50) seem to attract buyers as evidenced by the last rally from the current levels. However, that was followed by a lower high which dampens the bullishness of the current picture. The 38.2% Fibonacci retracement together with Bollinger Bands supported the price in the previous daily pivot low and now the price is fairly close to the same levels and trying to create a higher low. This indicates that the bulls are looking to take this market to test the 2060.75 resistance. If that is cleared and held (a higher low above the level) the picture becomes much more positive. This is negated if the last week’s low is taken out.
S&P 500, 240 min
Stochastics indicate some bullish divergence and the last complete candle is a bullish hammer. This suggests that the current levels could be a new base for a move higher. The price action however over the last hour has not exactly been explosive to the upside. That is due to the fact that the market participants are waiting for the economic releases.
Conclusion:
The long term picture is getting weaker with a monthly Doji candle appearing. The market now would need a higher high with an ability to main the new highs should the bearish indications in a monthly Doji were to be negated. The weakness indicated by the Doji candle should lead to increased volatility in smaller time frame charts and provide the traders with more opportunities in both directions (long and short). In the daily and 4h charts the price is now close the previous pivot low and we therefore should be looking for short term long trades. The four hour hammer candle confirms the trade idea but there has been no follow through as the market waits for the economic releases. We should be looking for signals to go long at or close to the January 6th pivot low.
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Janne Muta
Chief Market Analyst
HotForex
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