The market, here represented by the S&P 500 index (SPX), has been meandering of late. This stems partially from end-of-quarter dressing up, where funds buy stocks they should have at the first of quarter, so the stocks will appear on their end-of-quarter statements. The Russell indices also undergo their annual reshuffling so the three more truly represent the big, small and smaller. Another factor is that it is a trade-shortened week because Friday is 4th-of-July holiday. A final factor is perhaps those who await the pending earnings releases. The SPX also retests its 50-day and 200-day moving averages, happenings not unexpected in the world of technical analysis. On the bearish side, many large investors have long awaited a correction of the first move off the March bear-market bottom. A correction may indeed be coming, indicated by decreasing volume since the 930 peak in early May. Also, the index seems to be creating a head-and-shoulders top. The 930 peak is the left shoulder, 956 is the head, and we are currently shaping the right shoulder. However, a head-and-shoulders pattern is not complete or confirmed until price breaks the neckline, here drawn as the straight, red line across the 878 and 888 dips. It is slowly rising so would be crossed if the index drops below 898 or so. This should happen in within the next week, if it is to happen at all. Should it happen, downside targets are in the 820s area, but Point & Figure target has yet to go bearish, remaining at 1020.
We remain in a wait-and-see mode. The real advantage of technical analysis is not in projecting what will happen, but determining what is happening in a timely sufficient basis to trade it profitably.
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