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Negotiating the S&P North 40

Posted 09/25/2019 11:56AM CT | RJO Market Insights

For most of this month we’ve been discussing tighter bull risk parameters given 1) the market’s position at the extreme upper recesses of the past couple months’ range amidst 2) waning upside momentum.  With yesterday’s slip below 10-Sep’s 2957 corrective low and our short-term risk parameter, the market has finally confirmed a bearish divergence in momentum of a sufficient scale for shorter-term traders to neutralize bullish exposure in order to circumvent the depths unknown of a correction lower.  The important by-product of this mo failure is the market’s definition of 13-Sep’s 3026 high as the END of the uptrend from 26-Aug’s 2810 low detailed in the 240-min chart below and our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.

The daily chart below shows also this bearish divergence in momentum that cannot be ignored as a warning of a more protracted correction lower, again, from the extreme upper recesses of the range.  However, this market remains above a ton of former 2940-area resistance-turned-support and the neighboring and Fibonacci MINIMUM (2943) 38.2% retrace of the rally from 2810 to 3026.  Against the backdrop of even the late-Aug-mid-Sep rally, let alone the secular bull trend, the past week-and-a-half’s sell-off attempt falls well within the bounds of a mere correction ahead of a resumption of the secular bull to new all-time highs above 3030.

IF the market has a broader correction in store for us, it’s really gotta puncture that general 2940-area.  Until then, a recovery above recent 2985-area support-turned-near-term-resistance will be the first reinforcing evidence of a resuming bull while a break above 3026 will confirm such.

Also contributing to a still-bullish count is the fact that the sentiment/contrary opinion indicators are still wafting around historical LOWS typical of the ends of corrections rather than at frothy levels typical of peaks/reversals.  Indeed, at a current 46% level, the Bullish Consensus (marketvane.net) is just a couple ticks away from levels that have warned of and accompanied major lows and buying opportunities.

The weekly log chart below also shows the developing POTENTIAL for a bearish divergence in momentum.  But commensurately larger-degree weakness below 26-Aug’s 2810 larger-degree corrective low and key long-term risk parameter remains required to CONFIRM this signal to the point of non-bullish action.

On an even broader scale, the monthly log chart below shows the market within spittin’ distance of its all-time record high.  This, despite months of tariffs, Iran, Trump, Ukraine, you name it.  Amidst all of this negative, threatening news, the overall market has yet to provide any evidence of a sufficient scale to threaten the bull.  Minimally and on the heels of the past week’s slippage, a clear break below the 2940-area would be required to raise the odds of a more significant correction lower.  This week’s slip identifies 13-Sep’s 3026 high as one from which non-bullish decisions can be objectively based and managed, but this is only a minor indication of weakness thus far that prevents us from concluding anything more than another minor corrective dip.

These issues considered, shorter-term traders with tighter risk profiles have been advised to move to a neutral-to-cautiously-bearish policy with a recovery above 3026 negating this call and reinstating the secular bull.  Long-term players remain advised to maintain a bullish policy with a failure below 2940 required to pare bullish exposure to more conservative levels and commensurately larger-degree weakness below 2810 to jettison the position altogether.

RJO Market Insights

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