Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Sunday, September 16, 2012

S&P 500 Becoming Overstretched to the Topside?

Stock Market Technical Analysis Blog

click on above image to enlarge
Taking a look at a 6-year weekly bars chart of the S&P 500 index two things are showing up.  First, the S&P has reached the upper line of its 4-year mother channel and second, it is becoming considerably stretched up above its weekly 65 EMA line, a widely used "neutrality" line. 

When the S&P price is right at the 65 EMA line there is virtually no upside or downside pressure on it, it is considered longterm neutral.  As price moves away from the line to the topside or bottom side think of it being tethered by an unbreakable rubber band where as the stock gets farther and farther below the line the spring back up tension increases the farther away it gets.  The farther above the line the price goes the more the downside pullback pressure builds.  I marked five market highs on the chart and measured from the 65 EMA line to the highest point and posted the results.  The numbers are how many S&P points the peak price is above the 65 EMA line at that date.  It is easy to conclude that once the S&P passes +140 we are getting toppy and +155 having been the highest peak in the past 6 years shown in March 2011. 

Looking at where we are at now +147 we are well into the toppy area but may still have a few more points to go as the past two years have had their absolute peaks in the +153 to +155 area.  While we are not quite to that 6-year record high yet, we are getting close.  Something to think about...


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