S&P 500 Index (SPX) — It now looks like the March low in the S&P 500 (SPX) at 667 and the other major indices is the low, and even though we are technically still in a bear market, 667 will probably hold any test. But no market goes up forever and after almost seven weeks of solid buying, a correction — and therefore a “test”– is overdue.
We have finally reached a point where momentum has almost ground to a halt. And just as the “500″ entered the thick zone of key resistance at 875 to 920, two sell signals were triggered — a Moving Average Convergence/Divergence (MACD) sell on April 21 and a preliminary Collins-Bollinger Reversal (CBR) sell yesterday.
A CBR signal can take up to five days to be confirmed, but the bulls should be very cautious. In fact, now is an excellent time to cash in on any short-term trading gains.
If these signals turn out to be accurate, the S&P should slide under the short-term trend line at 875 and the 20-day moving average (green line) at 850 and head for the first support zone at 800 to 820.
And if that area doesn’t hold, then the next level is at 775, which would be a full 50% correction of the March to April rally. These support zones are the places to enter new long positions.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
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