Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
The action remains choppy but within a relatively contained area. Ahead of the ECB news tomorrow and employments data Friday we are getting a narrowing range on the S&P 500. Connecting the highs of 8/21 and 8/31 we can see the line connecting those two high points is the current ceiling. Meanwhile the index has bounced off the upper 1390s repeatedly the past two weeks.
There are some bull and bear cases to make here – on the bullish front the slope of the 50 and 200 day moving averages are firmly in uptrend. For the bear case there are still unfilled gaps below – mid 1370s and mid 1340s. And to fill at least one of those a “head and shoulders” formation (shown with the orange ovals) might be forming. The neckline must be broken for this to confirm, and that neckline is the obvious support the index has bounced off in the upper 1390s.
Another plus is small caps are actually looking better than the senior indexes for the first time in a long time – so a move from the safety of large caps to more risky small caps would be a good intermediate sign. We still have all sorts of issues with the cyclical stocks as news out of China continues to be poor – transports (warning from Fedex yesterday confirming the weakness in the chart), metals (ex precious), industrials, semis continue to struggle.
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