April 24, 2017

Weekly Stock Market Analysis on Wall Street's SP500

This week to which we had high expectations that some important movement would occur, it ends up being a boring week, with an average volume traded and a lateral movement, in which it only increased 19 points compared to the close of the previous week.

Daily SP500

As we see in the daily chart of the SP500, it is drawing a triangle in which it is reaching its vertex. As we well know, at the end of this figure there should be a strong movement in some direction. Coincidentally, the expected movement for next week is 46 points (gray rectangle).

On the other hand, analyzing the SP500 from the point of view of the main trend in a weekly chart, which is shown below.

SP500 weekly

We see how the ADX lost its slope, and the D + and D- are starting to come together. We interpret this as a sign of weakness in the main trend, and which suggests a possible correction in the short term.
We also see Stochastic breaking out of the overbought zone, giving us the cue for a possible pullback.

This makes us think that the SP500 should exit the triangle with a downward movement, heading as the first target towards 2300.
We must also bear in mind that the US economy is beginning to show signs of weakness. The LEI indicator (Leading Economic Indicator), which is an indicator of the general state of the economy ahead, is turning downward, the past CPI report was not good, the FED speculates about raising interest rates again.
And next week Trump will present the long-awaited tax plan. The one who has made big promises of tax cuts. We will see if it manages to fulfill them.

Regarding volatility
The VIX (SP500 volatility index), although it fell this week, managed to close above 14.5 (14.63 precisely) which is a high value for the VIX and indicates a potential risk for the markets.
The values of the volatility futures, although they have lowered the price, the contracts to May are still more expensive than those of June, which also indicates risk in the short term.
And the indicator that is elevated, marking a potential risk in the short term is the SKEW index which is at 148.4 (Index based on the OTM PUTs and CALLs of the SP500 https://www.cboe.com/products/vix-index-volatility/volatility-indicators/skew ).

Taking these points into account, they give us the guideline that a downward wave should unfold in the short term.


In summary
, the SP500 is inside a triangle, which we expect to break out of it with a violent movement, both up and down.
Taking into account the study of volatility, the economic situation of the USA, knowing that the bonds continue in their upward trend and that the financial sector is in a weak position makes us think that in the short term the SP500 should move down .

 

 

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