The markets saw their first weekly loss in a month. While this has caused much concern among the investing community, it is important to remember that the “trend is your friend.” As it stands now, the uptrend that is now in its sixth month remains in tact. However, the month of August has shown some signs of weakening of the trend and is signaling caution ahead.
I won’t bore you with a long-term analysis of the weekly charts. Suffice it to say that we still see a long-term uptrend underway. If you look at the MACD, though, there is divergence and a weakening of the MACD that may be early indications of an upcoming long-term shift. However, at this point, there are not enough signs, in my mind, to warrant altering my view of the trend. Its still a long-term up trend.
The daily charts are very interesting. For this analysis, I will focus on the S&P 500 as it is the broadest index. However, remember that this is an index of large-cap stocks.
S&P 500 Daily Chart - Short Term Trend
The daily S&P 500 is, by and large, still in an uptrend. From early March to early May the S&P 500 rocketed from its lows. It then took a two month breather, as you recall, formed a head-and-shoulders pattern and violated that pattern, thus re-establishing its bullish trend in Mid July. However, since the beginning of August, that trend has come under pressure. Looking a the 13-Day Force Index, we continue to have a bullish confirmation of the trend. However, the indicator is weakening.
Meanwhile, the price of the S&P 500, has followed suit to the indicator. OK, the indicator is following the price, but the point is, the S&P 500, while in a bullish trend, has begun to trade sideways in a tight range. I see short term resistance at about 1015 and short-term support around 990. Mid-term support would bring the S&P 500 down to around 945, support established by June’s ‘head’ from the head-and-shoulders pattern. For you Fibonacci lover’s this is a 50% retracement from the July lows (at the close).
The bottom-line. While the trend appears to be weakening, there is not enough evidence that tells me to switch sides. I’ll continue to favor the bulls. If you are waiting to look for re-confirmation of the trend, then stand aside until the S&P 500 closes above 1015. A break below 990 may be the signal of a new bear-trend.
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I am an amateur trader and investor with over 15 years experience in the stock market. I was bred to be a fundamentalist and followed fundamental analysis until 2009. Following the 2007-2008 bear market, I began to shift from a buy-and-hold strategy to trend-following techniques.