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Midweek Market Trend for January 16, 2019

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At the moment (Tuesday, January 15, 2019, 2 PM Eastern), the S&P 500 (SPX) is trading at a key inflection point, namely the widely watched 2600 resistance level (Figure 1).  Many technicians feel that resistance levels are harder to break when the market is in a downtrend and the intermediate trend is still down, as indicated by the negative slope of the 50-day moving average (Figure 1)(A).

Also, despite the recent rally, the relative strength index (RSI) is suggesting some caution is warranted.   It is still only around 55 (Figure 1) (B). Rallies in weak markets often cannot push the RSI to clear overbought levels above 70. Notice how back in the summer, rallies were able to put the RSI up to 70 (Figure 1) (C).

Figure 1:

Source:Schwab StreetSmart Edge®

Another slight negative is the recent action of the small cap Russell 2000 (RUT).  While it had been leading over the last couple of weeks, over the last few days, it has started to underperform (Figure 2) (A), and it has also not been able to break through the 50- day moving average despite several attempts (Figure 2) (B).

Figure 2:

Source: Schwab StreetSmart Edge®

The Nasdaq (COPMPX) also is testing its fifty day moving average but so far has not been able to penetrate above it (Figure 3).  Obviously the bulls would like to see those levels broken to the upside.

Figure 3:

Source: Schwab StreetSmart Edge®       

There are some positives in the market, however.  We had a rare Zweig Breadth Thrust (ZBT) showing wide participation in the move off of the lows.  The ZBT is computed by calculating the number of advancing issues divided by the total number of issues (advancing + declining). The indicator then calculates a 10-day moving average of this percentage. Some technicians believe that indicator signals the start of a potential new bull market when the moving average moves from a level of below 40% to a level above 61.5% within any 10-day period. As can be seen in Figure 4, this signal has often led to sustained rallies, but of course, no indicator works all of the time.

Figure 4 : 

Source:  Chart courtesy of ©Stockcharts.com. 

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