Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, July 15, 2013

How Extended Is The S&P?

Stock Market Technical Analysis Blog

Click on image to enlarge

Tonight I would like to take a look at a chart we last looked at about a year ago.  It is a weekly bars chart of the S&P with the 65 EMA line in blue.  Midterm overextension can be measured by how many points there are between the 65 EMA and current price.  Several overextended points have been plotted showing the numerical value of each.  The last overextension in mid May was extreme and a 5-week pullback followed.  Where the S&P closed tonight is just a few points from that same level but with the accelerating rise of the 65 EMA line the past few weeks the extension is about 20 points less.  Many traders are prepared to short the market tomorrow at the horizontal line across from the mid May peak thinking this might be a meaningful double top, others will be waiting to see if we can achieve the +212 over extension from the 65 EMA line instead.

The third argument is that neither is right and we will breach 1700 on the S&P.  This is also plausible especially if you take note that the May 24th bottom tick was a successful backtest of the upper line of the three and a half year channel (shown above) in addition to the backtest of the upper line of the 20 year channel that I focused on in Saturday's blog.  There is also disagreement as to whether we get just a small pullback or a multi-week pullback if we peak.  The channel lines are real but the move was forced with extreme manipulation.  

This is going to be interesting...

Trade well my friends