SPX Holy Grail Sell Setup

July 1, 2020
/ By Jeff Cooper

“In a while will the smile on my face turn to plaster? Stick around while the clown who is sick does the trick of disaster.” – Buffalo Springfield/ Neil Young

The SPX just staged its best quarterly performance since 1998.

Many pros who have been around for more than a few cycles are befuddled at the market’s 2nd quarter “V” contrasts starkly with what is an economic inverted “V.”

Of course, money manager after money manager recites scripture and verse that the market is a discounting mechanism and is walking a bridge over troubled economic waters.

It may be a bridge too far. Arguably, the Fed’s MMT has snuffed out legitimate signals with its largesse leading to the zombification of the market.

As the second quarter starts, I can’t help but wonder if we’re dealing with a weekend at Bernie’s.

What does the market do for an encore after the best quarter in decades? What does the Fed do for an encore?

The SPX reflects this no-man’s land.

Last Friday, it turned its 3 Day Chart down for the 3rd time since the advance off the March low.

There is a conspicuous distinction between the price action since the 3 Day Chart turndown on June 11 and the prior two instances.

The prior two times the SPX turned its 3 Day Chart in May defined lows and the 3 Day Chart turned right back up.

Since the turndown on June 11, not only has the SPX been unable to turn its 3 Day Chart back up, but the index has been unable to cobble together 2 consecutive higher daily highs.

It could do so today on trade above Tuesday’s high.

However, if so, it would be occurring in the context of declining trendline resistance and a backtest of its 20 day moving average which ever so slightly is turning down.

I call a backtest of an overhead 20 day moving average a Holy Grail sell signal.

This is due to its effectiveness in so often defining pivot points.

Notice how tests/undercuts of the 20 day moving average throughout the 2nd quarter rally defined nice pullback buy points.

Summary. The SPX is at an interesting inflection point technically as the 3rd quarter begins.

It is challenging its overhead 20 day moving average following a near perfect test of its 50 day line on Friday.

Friday was the closest the SPX has come to testing its 50 day line since reclaiming it in April.

If the SPX is rejected from the current region and falters below its 50 day, it will open the door to the 2700 region.

For its part, the NAZ also turned its 3 Day Chart down on Friday. This followed what looks like an Island Reversal Top on June 23.

However, the NAZ has recaptured its 20 day moving average. This underscores the bearish divergence between the NAZ and the SPX.

That said, today above yesterday’s high will put the NAZ in the Minus One/Plus Two sell position as it tests its Island Reversal.

SPX Holy Grail Sell Setup

Leave a Comment:

Popular posts

How to Use the VIX Curve to Judge the Market’s Mood

Sami’s Swing Trading Blueprint: April 29, 2018

What’s On Tap for Traders: April 24-29

Why Is Bitcoin Moving? T3 Live Readers Sound Off!