The markets drifted through the week unable to establish a direction.  All the major indices finished the week in positive territory, but near their lows for the week.  The long-term trend has shifted toward the downside, while the short-term trend has become range-bound over the last several weeks.

Long-Term Trend 

Long-Term Trend

Long-Term Outlook: Bearish

Normally, I use the SPY as a proxy for the S&P 500.  However, there has been a divergence between the S&P 500 and its proxy.  The S&P 500 has continued to make weekly gains over the last two weeks while the SPY has closed lower.  The S&P 500 shows a bearish divergence between price and the MACD.  The S&P 500 hasn’t made much upward progress, about 1 point each week, but the MACD has shown measurable decline during the time period.  A bearish divergence between the price and the MACD is one of the strongest signs of the end of a market rally.

Short-Term Trend

Short-Term Trend

Short-Term Outlook: Range-Bound to Bearish

The short-term trend has become range-bound since early May.  Resistance is at 93.01 on the SPY and support at 88.60.  However, the short-term trend is under pressure to toward the bearish side.  On Wednesday, the S&P 500 registered a distribution day (a decline of more than .1% on higher volume).  This was followed up by SPY closing below both the 20-day moving average and the trendline the last two days of the week (but above the resistance level of 88.60).   The stochastics have also continued to fall and are approaching oversold territory.

Action

Look for Shorting Opportunities.
Tighten Stop-Losses on Long Positions.

The long-term charts registered its second week of a bearish tendency as the MACD continues to fall from its highs.  The short-term trend has turned from bullish to range bound and continues to weaken toward the bearish side.  Continue to look for shorting opportunities while keeping tight money management policies on any long positions.

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