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Thursday 20 August 2020

Degrees Of Separation

 My apologies for my being unusually quiet over the last few days, My wife of 23 years and I are starting the process of getting divorced and I have been distracted by that. It's definitely for the best, and likely this would have started a year ago if she had not been diagnosed with cancer then. She is now clear and largely recovered, and the reality that we really shouldn't still be married to each other any longer has been brought into very sharp focus by COVID-19 and the quarantine this year, as I suspect it has for quite a few couples, so we are starting the process of correcting that. Our children are old enough now, are supportive of the split and it is just one of those things.

On to the markets where SPX has made the new all time high that seemed likely and where stock markets seem very disconnected from the real economy of eye-wateringly high unemployment, social distancing and sagging consumer demand. Is this sustainable? Well as always time will tell but I suspect not. We'll see.

I'm not sure who drew this outstanding cartoon below but many thanks to the artist for expressing the quiet satisfaction that US Main Street must be feeling now about the Nasdaq and the S&P 500 hitting new all time highs : -)

SPX isn't any more stretched than it was at the time of my last post, but it is still very stretched and there is a good argument and setup for thinking that the next retracement to the mean is starting here. The minimum retracement to the mean for me would be a backtest of the 45dma, currently in the 3238 area.

SPX chart vs 45dma:

Would that retracement to the mean move stop at the 45dma? No, historically it would often then continue down to the 200dma, currently in the 3072 area and the obvious next target on a break and conversion of the 45dma to resistance. Decent quality daily RSI 14 and RSI 5 sell signals are now brewing but need more downside to fix.

SPX daily chart:

On the SPX hourly chart an RSI 14 sell signal has now fixed and rising wedge support from the March low has broken. I haven't marked it in but there is a decent quality double top setup that would be targeting the 45dma area on a break down.

SPX 60min chart:

On NDX there is now a really very nice overall rising wedge from the March low and NDX may be topping out for a significant high here. A daily RSI 14 sell signal has already fixed, as well as this hourly RSI 14 sell signal on the chart below and I'm watching that rising wedge support, currently in the 11150 area, for a possible break down. 

NDX 60min chart:

Stan and I are doing our monthly big 5 and sectors free public webinar at theartofchart.net tonight and if you'd likely to attend you can sign up for that on our August Free Webinars page or the direct link that I will be tweeting on my twitter shortly after I publish this post.

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