S&P 500: Is It More Than a Bear Market Rally?

After such a strong rally the previous week and by the end of the month we were expected to see some recovery. However, this was limited over the past week to Monday and Tuesday as the bulls watched enough and the bear buyers came back into play in a big way on Wednesday. Overall, the indexes had little net movement, but still rose.

Holding the price around these higher levels improves the chances and sustainability of the big moves the markets have made recently. Indicators continue to turn from bears to bulls. Yet the weekly price channel (below) doesn’t signal that this rally is anything more than the bear market variety.

The channel is still intact and the candles on this chart are pink, meaning moderately bearish. The SAR (red arrow) remains bullish and the downtrend line may soon be removed and replaced by a flatter resistance line.

The indicators we are using this week include the Traders Dynamic Index (TDI) and the Chande Momentum Indicator. TDI uses a combination of indicators such as the Relative Strength Index (RSI) and Bollinger Bands, which provide excellent buy/sell crossover signals. Note the recent crossover at the end of July and we now see the lines crossing above the “smoothed” smooth line for the first time in a year.

Looking back to 2020, this crossover in July of that year was an excellent place for a long position. The Chande Oscillator also looks at the relative strength of the markets. It is similar to other momentum indicators in that the strongest signals are created by higher highs, higher lows on the chart. We see that the weekly S&P 500 Chande indicator is currently at the zero line, a resistance level that says this rally could stop.

So we have a divergence in similar metrics. In this case, stick to the price chart, which is still bearish but is starting to look better.

 Dealer Anatoliy Pavlov

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