We’ve seen the markets on a tear lately. The stock market rally that began at the start of the year has been largely trend channel based. The rally has been tight and resilient. This has happened many times in the past. It seems as though traders are buying blind, but I always advise people to trade what they see. The trend isn’t over until it’s over. I will attempt to clear out some of the noise by pointing to technicals.
The chart above, once again, shows the S&P 500 in its upward trend channel. I hate to keep beating this drum over and over, but it’s not my fault. You have to blame the market for this one. Plus, above all other things, I’m a drummer at heart. I would like to see a break out below that channel, but as long as we are in the channel, I don’t see too many reasons to believe it can’t continue.
I’d like to focus your attention to the RSI (lower panel) on the above chart. We had a minor turn lower yesterday followed by a pick up today. RSI is still above 70. For the broad market indices, I tend to look for and 80+ RSI for overbought conditions. There has been A LOT of buying, but I wouldn’t call things overbought just yet.
I would also like to point out that all of our Moving Averages in the cluster have consistently positive slopes. That’s quite bullish.
The Russell 2000 is the same, yet different. It’s the same in the sense that it is still happily in its upward trend channel, but the RSI is telling a very different story. We had a sharp turn lower in the RSI from almost 80 to 60 yesterday. Like the Dow, we had a little push higher today. Mathematically speaking, if the Russell 2000 continues to rise, we could see the RSI trend lower. That would be divergence. And divergences are usually excellent sell signals. If the Russell only goes up from here (with no real pull backs) then the RSI won’t diverge. We’ll keep and eye on it for ya.
We’ve been closely watching the NQ and its sideways channel that began at the beginning of the year. We closed above it once before to only be faked out back into the channel. We have the potential for an upside break out if we can open trading on Sunday/Monday above the channel. We also have to stay above the channel and close above it for the rally to officially ensue. We’ve already had a very strong run up in the Parabolic SAR showing buying power (NOTE: Parabolic SAR is orange on the price panel. The red and blue dots are keeping a count of how many Parabolic SAR points there are.).
I’m looking for AAPL to lead the NASDAQ higher. If we get that, then a push higher is very likely. At this point, we have to see what becomes of this channel break out. Stay tuned as I will surely write more about it in the coming days.
So, to conclude, we had all of the major indices (S&P 500, Dow, NASDAQ, and Russell 2000) close higher this week. We stayed in our respective bullish channels and NQ broke out of its channel. I will try to remain cautiously optimistic moving forward.
Thank you for reading.
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This article was written by joe.shehata