The futures are up this morning, at least as of this writing. Whether this rally has legs or is simply speculative ahead of the FOMC meeting announcement remains to be seen. What's encouraging at this time is the fact that the trend appears to be in the early stages of a reversal to the upside on the 60-min timeframe, unlike last Friday when it was still indicated down at the close of the session despite the enthusiastic rally. This positive development, along with the break-neck momentum decline pattern that I pointed to yesterday afternoon, should constitute fertile ground for further growth in the coming hours. In short, the technical landscape is ripe for continued gains, but it's up to Bernanke to spread the grass seed today.
With that said, I wouldn't get too enthusiastic beyond December 20th, as indicated by the rightmost blue box on chart 1 below. I personally believe the upside in the S&P is limited to the recent high of 1267, give or take a few points. This would be especially true if the Fed does NOT announce some sort of QE program today, but the market stays on the northbound track anyway.
Chart 1. December's advance in the S&P will probably be subdued, despite the optimistic consensus calling for
an upside target north of 1300.
Chart 2 below depicts the longer-term picture that I've been tracking. Can you tell why the S&P found support near 1227 on Monday? The 15-week EMA (exponential moving average) and the lower red trend line joined forces to repel price. On the upper end of the trading range, the technical justification for the recent subdued upside is found in the resistance cluster consisting of the underside of the blue neckline and the 15-week SMA (simple moving average), not to mention the 'I want my money back' psychology discussed in yesterday's
midday report.
Chart 2. The uptrend remains intact as long as the lower red trend line is not broken.
Finally, what does the picture look like beyond December? It's hard to say at this point. However, the multiple-timeframe view shown in chart 3 below strongly suggests that we keep an eye on the higher timeframes, namely, the 3-day and/or the 1-week. Once the cycle indicator reaches the top end of its range (aka. overbought condition), and price begins to exhibit signs of weakness, we'll have to be vigilant for the possibility of another reversal to the downside. As shown, the 50-SMA on the 3-day timeframe remains decidedly down, and this could very well be the beat that the market is dancing to.
Chart 3. A multiple-timeframe view of the S&P. More clarity to come in the next week or two.
Finally, no one knows if the bull market that began in March 2009 finally came to an end back on May 2nd (arguably, February 18th). Heck, they can't even decide if it was a cyclical or secular bull market. What gives me reason for pause, however, is the 50-week SMA that has clearly flattened after two years of solid green performance. I should expand on this topic in another writing.
Trade Well,
Peter