A Clear View of Technical Parameters by a Long-Term Monthly Chart of SPX

Sometimes we need to dumb it down and look at cartoons or the simplest pictures we can find.  This is a calming view when considering the noise of Elliott Wave bulls and bears battling it out, revising their wave counts and then battling some more; and when considering macro fundamental bulls (i.e. believers in policy) and bears (us other guys).

There are over sold conditions across financial markets, a case for a decent Q3 earnings season (amid lowered expectations, ref. last night’s update on earnings preannouncements) and a bleak sentiment backdrop.  Oh and also, we are right at the next point on the plan, which has been a decline to the August low re-test.

There is a lot to think about, but on the big picture I find charts like this do not care about the daily or even weekly static.  So let’s get a clear look at what the monthly view of the S&P 500 has to say.  Please click to expand to get a nice, clear chart…

spx monthly chart

This is so simple as to be exhilarating.  For geeks like me anyway.

The October 2014 and August 2015 lows are by definition, a support area.  I’d say that the October low counts more as that is the ‘higher low’ decision point for the longer trend.  It resides at 1820.66.

Today looks like a market bounce is brewing, but recall that we are expecting volatility as Q3 ends and the ‘scary’ month of October begins (with sentiment down the drain, no less!).  It is a contrarian setup for a rally, which can begin now with the pre-market pump or after some ups and downs in the coming days if the lows are repeatedly tested.

You see, the above is a complicated set of paragraphs and this update wants to keep it simple.  So lets retreat to the chart and interpret what it says.

  • MACD has made a very bearish signal, the kind that ends bull markets.
  • RSI and STO (each set to stockcharts.com’s standard values) have dropped to points that were big buying opportunities in 1998 and 2011, but these did not include MACD as bad off as it is today.
  • This could be a way station on the way to a bear market.
  • Please note the two red arrows on the price chart from 2001 and 2008.  In each case, the SPX topped, lost the mid Bollinger Band level (20 month moving average) and bounced to test the breakdown.  Then bear markets really got going.
  • SPX lost the MA 20 in August, rose to test the breakdown (ref. our bounce targets of 1975 and 2040) and dropped anew to a retest of the lows.  More upside testing could be in store.
  • If the Oct./Aug. lows hold for a bounce the new key test will be at the mid-Bollinger point (MA 20), which is currently 1996 and rising.  Let’s round it off to 2000.  Of note, this area coincides with lateral resistance and the up channel’s top line.
  • The chart however, is bearish.  That is not me wanting it to be bearish.  That is just what it is.  For now we are only watching for a drop to 1700+, which is the next downside target.  That is of course, assuming any bounce tests fail, and we should always monitor our assumptions based on future data points.
  • On its biggest picture, this chart remains in an uptrend, even if 1700 or 1550 are tested.  So if there is more downside out ahead, we could be looking at a cyclical bear market within a longer-term bull market.