Sunday, August 24, 2014

Stock Market Internal Sentiment Update

Click on Charts to Enlarge

A couple days ago I had posted similar charts to these showing that while price was moving higher the last couple days, we were not seeing internal market indicators continue the same trend.

Above we see SPY with a MACD below where the MACD has fallen a bit as price moved higher.  There is nothing here that smacks of a significant reversal in my opinion, but it does look like a significant divergence is still forming on this time frame.  Given the daily and weekly time frame MACD indicators are in a bearish divergence, this shorter time frame signal may be of significance.

The NYSE Tick indicator on the hourly chart has also weakened the last several sessions.  A cross of the moving average below 0 could lead to some follow through to the downside.  Again this indicator is still suggesting that any higher highs from here without expanding breadth could be a continued divergence building.

The VIX on the hourly time frame is still well above the summer lows, maintaining the larger scale volatility divergence that is so consistently present at significant market turns.

The bottom chart is a daily chart of the total put/call ratio with a moving average and some deviation bands.  The current average is not below the lower band, but is close to it, suggesting that we keep alert for a move outside the lower band.  That would be a higher quality signal that the rally was near peaking.  Again of note here is that the moving average is well above its lows from the winter, but with prices now at new all time highs.  So again this could be viewed as a large scale bearish divergence with fear (in the forms of put trading action) increasing and forming a rising trend while prices are mustering some modestly higher highs.

So in summary here, I think that the major bullish run off the recent low is mostly done and we are more likely to experience more overlapping price action from here and possibly a significant top reversal process here around the 2000 level on the S&P 500.  It seems very likely to me that early this week price will move up to 2000 on the S&P 500.

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