Slope of Hope Blog Posts
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In my last post a week ago I was remarking at how very stretched SPX was and how near it should be to a mean reversion move, and the mean reversion high was then made within a few minutes of my publishing that post. The minimum target for that mean reversion move, last reached after the June high, is a backtest of the 45dma, and that target was reached at the low yesterday. That may of course be the low for this retracement, and I’ll be looking at the setup for that today.
SPX daily vs 45dma chart:
The high earlier this year was at the main resistance trendline on SPX, starting at the low in March 2009, support at the low in 2010, broken as support in 2011 and then backtested as resistance then and several times since. The high yesterday was just shy of a full test and that has broken on the move up today, with visible breaks on both the weekly and monthly charts. That may just be a bearish overthrow on the bigger picture but it is still a huge break.
In the short term SPX is now about 8% over the 45dma, approaching the 8.7% over the 45dma reached at the June high, which was the most extreme high on SPX relative to the 45dma since 2013, though there may possibly have been more extreme highs before that I haven’t identified yet. This is a very extreme level and a retracement to the mean high must be close, and could be forming now.
SPX has gone through a lot of trendlines and divergence on this amazing move up, with the last lot breaking on the move over the 3350 area including the negative divergence on the daily RSI.
SPX is very stretched here, has punched 100 handles over the monthly upper band, touched an amazing 7.1% above the 45dma when I last annotated that chart yesterday, and is now close to testing the last and largest resistance trendline on the chart.
That trendline starts at the March 2009 low, held support at the 2010 low, and then was touched as resistance at highs in 2011, 2012, 2014, 2017/8, 2020 and is now close to being tested as resistance again. That trendline hasn’t broken as resistance since SPX crossed below it in 2011, and I have it in the 3510-20 area at the moment, though that is an approximation on a trendline that is now more than eleven years old. At the time of writing SPX has reached a new all time high at 3508.07.
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.
SPX broke up through both of the inflection points that I was looking at in my post earlier this week with the second one at the island top gap into 3337.75 yesterday. SPX here is very stretched, but that doesn’t mean that it can’t go higher, and there are no longer any significant resistance levels between here and a retest of the all time high, which I’m now leaning towards seeing before SPX makes the next serious retracement.
A serious retracement is of course a retracement strong enough to break and convert the daily middle band and then likely deliver a reversion to the mean move or more. I was asked earlier this week what I meant by that and I’m going to take a little time today to explain what I mean as it is very simple and extremely easy to incorporate into your market views if you don’t have a system to do this already.