sp500 Continues to Trade in Strong Trend Mode

The sp500 continues to trade with astonishing strength in terms of price resilience, but not in terms of volume.  Price continues to act strong and we still have not created any bottoming tail on the monthly, quarterly or yearly price candlestick chart of the sp500.

The fact that the market is unwilling to create any bottoming tail on the yearly candlestick at this point should probably be interpreted as an extreme sign of strength.  Yearly price candlesticks with no bottoming tails are extremely rare.  Of course it is also true that the market has the option to create a yearly 2011 bottoming tail at any time during the rest of this year, but for now it is in no mood to create one.

There is still a strong resistance zone at 1300 to 1313 at which time I would expect some type of pullback.  Whether or not this level is worth shorting remains to be seen.

The NYSE summation index ticked higher strongly again today and shows there is still enough upward momentum for higher prices maybe into end of January.  It looks as though January is going to be an up month giving the bulls exactly the statistic they were looking for.

So why all the market strength that seems relentless ?  Perhaps you remember the large cup and handle pattern I discussed on the sp500 some time ago ?  The cup and handle pattern is a quite reliable pattern that is typically found in strong up trending stocks.  The cup and handle pattern in the sp500 translates to hundreds if not thousands of similar large cup and handle patterns in individual stocks each at different phases of creation.

This market dynamic creates a situation where you have new cup and handle breakouts occurring every few days.  That is why the sp500 is so strong and powering relentlessly higher because it is a market average that has melted all the different cup and handle patterns at different stages of breakout.

So sp500 strength is great but does it ever end ? Of course it does and it always will.  If it does not end, then it will consolidate before moving higher.

The WEEKLY RSI on the sp500 right now is 72.53.  In April of 2010 the weekly RSI hit 72.62 right before it topped out.   However I do not view the currently weekly RSI reading as a sign of an imminent top yet.

Rather I like to view the current weekly RSI reading as a sign of strength of the market and one that is currently trading in the ‘weekly power zone’.

It is going to be interesting to see how long the Weekly RSI will be able to remain above the 70 power zone level.  In 1995 the weekly RSI remained above the 70 level between 6 to 9 months before the market finally got a more serious correction going.

In the 2004 period the weekly RSI blasted above the 70 level also near the January time frame but then double topped out finally on March 5, 2004.  The seasonality factor could top us out at a similar time frame.

At this point it would only be a guessing game as to how long the weekly RSI will remain above the 70 level.  But for now the presumption still has to be that the market wants to trade within this powerzone.

We need a decisive break of weekly RSI back under the 70 percentile line again to signal that the super power uptrend is over.  Until that happens one must presume strength.

Posted in Index Trading, SP500
6 comments on “sp500 Continues to Trade in Strong Trend Mode
  1. Geoff says:

    The following appearred on http://www.zerohedge this morning (1.13.11)
    As a point of reference the S&P has been above the 10 day average for 30 days straight, and above the 50 day average for 92 days straight. What is remarkable are some statistical findings as pertain to the average’s movement with respect to the SMAs. Sentiment Trader points out that while as part of the recent surge in the S&P, the market has gone for “92 days without closing below its 50-day average, which has been matched only 17 other times since 1928.” Where it gets scary, is that as pointed out, during this time the market has not closed below the 10 DMA once during the past 30 days. And as Sentiment Trader notes, “this has never happened before, in 82 years of history.”


  2. Tom says:

    That is quite an astonishing statistic. Even during the mega power run of 1995 there were plenty of times where the market closed a couple times under the 10DMA.

    So the current trend is more powerful than at that time.

    I guess this says to me that when and if we do close under the 10 DMA it will likely be a buying opportunity. This trend is too strong.

  3. Geoff says:

    “when and if we do close under the 10 DMA. . . ”

    Well, of course, the market at some point MUST close under the 10 DMA. When is the question. The EW adviser “pug” has been saying for quite a while that 1290 to 1304 to 1314 is the top to be followed by a down wave of only modest proportions – – 7 % to 9% and than a strong up wave. That seems to be his 90% probability, but apparently he also thinks a small possibility 10% that we could revisit SP 950. I have never seen an advisor so detailed and so accurate – – in my entire life.

    According to pug we may be very close to an intermediate term top. When we break the 10 DMA, it would not surprise me if the break would be dramatic, but i would tend to agree with you that it will probably be a short term buying opportunity until the market heads down again.

  4. JR says:

    I am still looking at a EW wave (v) of [v] of Minor 5 on the $SPX. The wave will complete around 1300 and there should be a ton of resistance at 1309 which is the summer of 2008 price high just before the crash.
    EW theory says the hot air balloon is about to come back to earth!
    I think this will be the real thing for the bears! Needless to say, I have been putting my shorts where my mouth is.

  5. JR says:

    I closed out my shorts today with a small profit! This market is really hard to believe. I will give the S&P anther ten points on the up side and then take another look at the short side!

  6. Tom Tom says:

    The market is really quite strong… every decline is seen as a Christmas gift and then some…

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