Today’s sp500 Technical Analysis suggests that the market is still not trading with downside volume conviction and points to a good possibility that there will be no big market moves through the rest of this trading holiday week.
Volume today in the sp500 was light again and we did not see a strong upward reaction in price from yesterday’s weakness. This is a short term bearish sign that the market was unable to establish a stronger upside reaction rally or an upside gap fill.
There are two trading days left in this week and they are likely to remain very light volume trading days. It is hard to believe that that sp500 will be able to initiate a big move this week. Having said that, the sp500 technical analysis on the daily, weekly and monthly charts does show more weakness ahead (in particular the sp500 weekly macd histogram price chart shows that we are currently in a confirmed weekly bearish histogram sell signal). The tape and the trend of the sp500 does look weak to me. If we DO manage to move hard down into the rest of this short trading week into Friday then I would have to consider it even more bearish. Why? Because we are supposed to have positive seasonal cycles at work this week. So a very weak market into end of week could be an ominous sign.
The first three trading days of next week will be crucial. The last trading week of November 2011 and the week that will determine the monthly price candlestick closing of November will be crucial.
The technical analysis of the sp500 suggests that the true character of the market will be determined after the next bounce. The ideal bearish scenario is for a bounce into the rest of this trading week and then a strong resumption down the last week of November 2011 to finish the monthly price candlestick. That would set up a potentially very bearish next few months of trading in the sp500.
Market internals such as the NYSE summation index and the bullish percent index show more weakness ahead.
The US Dollar continues to form into a possible rising wedge. Despite the recent decline in the sp500, the US Dollar struggles to move higher. This is a concern in the near term for those who are looking for more significant bearish price action in the weeks ahead. The US dollar needs to confirm the weakness in the sp500 by breaking out strongly north from its rising wedge formation. So far it has not.
International indices such as the German DAX are also looking weak as well as the French CAC 40 Index.
So in summary the sp500 technical analysis currently suggests we see more weakness ahead, with an outside chance of a downward momentum slide down in the sp500 either this week or by mid week next week (end of November 2011).
I am open to the possibility we are on the cusp of a major new leg down, but this possibility still has doubt in it because of the low and weak downside trading volumes in the SPY. Price is leading now, but downside volume will need to play catch up if we are to be in the beginnings of a major new down trend.