Clouds continue to form

Starting this Friday May 15, this email blog will be distributed and posted weekly every Friday evening. Any given week, we’ll discuss a variety of topics such as simple-to-apply strategies, updates on our Forte Strategy and new research developments. We’ll end each email blog with a brief Forte performance and market update for the week. So until Friday, here’s our latest technical take on the S&P 500.

Market Update

In last week’s blog (“So where is the market headed?”), we provided technical observations on the daily S&P 500 chart suggesting that the market is more likely heading down than up. Here’s an update:

20200511_MCR_ES

  • Despite last week’s continued retracement run, the SMA 200 resistance level is still holding (2992).
  • The high of the fifth of five Elliott Waves has also not been breached (2965).
  • Friday’s close stopped slightly above 61.8% Fibonacci retracement level (2923).
  • Volume continues to decline implying a steady decrease in buyers.
  • Momentum oscillators, such as the Polarized Fractal Efficiency (PFE) trend strength indicator (displayed in the chart above), is diverging.
  • We’re convinced that these final bullish surges are being largely driven by traders covering short positions (short squeeze). This could continue for another several days or even weeks…which could make the next leg down that much more sudden and aggressive.

At MCR, we monitor several commonly-tracked technical indicators which collectively increase the odds of identifying potential key trend reversals. Similar to how meteorology works for weather forecasting, the predictive accuracy of technical analysis (or “chartology”) is not 100%; however, it has consistently proven to be effective for decades (even centuries!). Just keep in mind that support and resistance levels could be breached, rallies may continue longer than expected and forecasts may change. We’ll continue to provide updates every Friday – stay safe and healthy!

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