Early Warning: Topping Signals – Investing.com

This post was originally published on this site

The stock market is at a short-term inflection point. The advance off the October lows has been indecisive and has lost momentum right under resistance (200-day moving average). This would be a logical area for the market to reverse course and head lower.

On the other hand, a weekly close above the 200-day moving average and last week’s high would be bullish. The next two weeks’ market action will be telling.

Below is a weekly chart of  ETF. Here are my takeaways:

  1. The index closed right under its 200-day moving average which is resistance.
  2. The past week ended with a Doji candle. This candle suggests a loss of momentum when occurring after a move higher.
  3. The last three advances ended with the same type of candle.

SPY Weekly Chart

Below is a daily chart of SPY in the upper panel and in the lower panel I chart the percent of stocks within that index that are above their respective 20-day moving averages.

Notice how each time the percent of stocks above this moving average exceeds 80 it has been a reliable indicator of a change in trend. The index is currently above 80.

SPY Daily Chart

I view these two charts as early warning signs. They are useful in that they keep me focused on looking for corroborating technical evidence of a change in short-term trend.

If we see a strong move down this week, that weakness could trigger other signals such as momentum indicators rolling over, the rising, etc. Weakness would beget more weakness.

This post was originally published on *this site*