The first chart is a NYSE Oscillator (NYMO) daily one-year chart
(red line and right scale) with NYMO's 50-day MA (blue line) and daily
SPX (green line and left scale). On Fri, SPX closed above 1,325, while
the daily NYMO rose above 30, and the NYMO 50-day MA closed at roughly
negative nine. The daily indicators above and below the price chart
show NYMO is short-term severely overbought, which indicate little SPX
upside and a SPX pullback.
The second chart is an eight-year
daily chart of the NYMO 20-day MA (gray line) and NYMO 50-day MA (red
line), which includes all historical data. The chart shows each time
the NYMO 50-day MA rose to or above 20, it fell to negative 20 or
lower, and each time that took place, the NYMO 20-day MA rose to or
above 30 and fell to or below negative 30. Currently, the NYMO 20-day
MA is roughly negative 17, which also indicates an SPX pullback.
The
third chart is an SPX weekly two-year chart. SPX generally traded in
the upper weekly Bollinger Bands, since it began the rally in Oct, and
closed slightly above the upper Bollinger Band Fri. The ADX line, above
the price chart, remains bullish, since the green line is above the red
line. However, the low red line suggests profit taking may take place
soon. The MACD lines, below the price chart, had a bearish crossover
last month and then reversed with a bullish crossover.
Also, the
red zigzag lines of the third chart show SPX ralled from roughly 1,075
to 1,225 in Aug '04 to Mar '05, in seven months, and then fell over 75
points in six weeks. Over the recent rally, SPX rose from roughly 1,175
to 1,325 over the past seven months, since Oct. So, a pullback may take
place over the next few weeks.
The three charts indicate little
SPX upside and an SPX pullback within the next few weeks. However, if a
short-squeeze takes place, it would need to happen next week, because
of recent momentum. A short-squeeze may lead SPX to around 1,350 within
a week. However, it's more likely SPX resistance around 1,325 will hold
and a pullback will begin next week. There are many major support
levels between 1,275 and 1,315 with a key support zone between 1,275
and 1,290.
The FOMC is expected to tighten and change its
statement Wed. The statement may clarify that future monetary policy is
unclear, i.e. the FOMC will either pause or not pause, while remaining
data dependent. Consequently, this statement will disappoint the stock
market.
Charts available at http://www.peaktrader.com Forum Index Market Forecast section.
Arthur Albert Eckart is the founder and owner of PeakTrader.
Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and
First Commerce Technologies, during the 1980s and 1990s. He has also
worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in
Economics from the University of Colorado. He has worked on options
portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization,
and technical analysis to maximize return and minimize risk at the same
time and over time. This methodology has resulted in excellent returns
with low risk over the past four years.
