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We all know the scenario: I have good news and I have bad news. Which do you want first?
Having three sons, I get this presentation at least once a week at my house. While I hate to use a cliché such as this to describe the market, it really is a good news/bad news scenario we have right now when it comes to the S&P 500 index.
I will give you the good news first. On the daily chart, we see that the index hit oversold levels and reversed course last Friday. The low last Thursday was in line with the low in January. Failing to break to a new low is a good sign, as is the bounce out of oversold territory.
One other thing that caught my eye on the daily chart is the downward sloped channel that formed in November and December. Take note of how the rally in late January peaked out near the lower rail of that previous channel. That could be a concern moving forward.
On the weekly chart, we see similar good news with oversold levels being hit and then seeing a bounce. We see the low from January holding and lining up with the low from the fall of 2014.
There is bad news on the weekly chart, though, and that is the fact that the 13-week moving average has made a bearish crossover of the 104-week moving average. This doesn’t happen often. The last time it happened was in late 2011, and the time before that was in February 2008.
The worst news for the S&P is on the monthly chart. There are a couple of things to look at here. First, the monthly stochastic readings moved below the 50 mark. The only two times this has happened in the last 20 years were in late 2000 and again in late 2008, right at the beginning of the bear market in each instance.
The second item to be concerned about is the fact that the 12-month moving average looks poised to cross bearishly below the 24-month moving average in the next month or two. Each of the two instances where the stochastic readings moved below the 50 level were followed within a few months by a bearish crossover of these two moving averages.
So we have signs on the daily and weekly charts that suggest a bounce is due, and I also received a bullish signal from my own market indicator over the weekend. However, the monthly chart and the weekly moving average crossover make me think that a bounce is only providing an opportunity to sell equities at a better price before the market starts heading south again.
I can tell you that I have already taken some action in my retirement accounts and have suggested to my wife to do the same. I will be taking more action once I feel the bounce has run its course.
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