Originally published by Guppytraders.com
The double bottom pattern in the S&P 500 is developing. This is the dominant pattern in the S&P index and it is bullish. However, the pattern development is slow, indecisive and uncertain.
This suggests that the pattern will run in to strong resistance around the level of the double top pattern federated in early 2018. Rather than the double bottom pattern leading to a strong up trend breakout the current reaction suggests this may tarp the S&P index in a long, slow sideways pattern with the market moving between 2580 and 2790.
This type of sideways pattern is good for traders as the market rallies and retreats within the confines of a broad trading band. Its no so good for long term investors because the market returns are limited by the strong resistance level. Investors look for a good breakout above the upper resistance level near 2790.
The current behavioral relationships in the Guppy Multiple Moving Average (GMMA) indicator suggest that a strong breakout has a low probability of developing.
The short term group of averages which is used to track the inferred behavior of traders has shown some compression and expansion activity. However this is not particularly strong. There is no great trading conviction in the rallies, nor in the retreats.
The long term group of averages is used to infer the behavior and thinking of investors. The degree of separation in the long term GMMA is an indication of the strength of the trend and the confidence level of investors. This is seen very clearly on the left side of the chart. Compare this separation to the degree of separation seen on the right side of the chart and its clear that investors have lost confidence in the market. The compression and clustering in this short term group suggests market nervousness and lack of commitment to a strongly developing uptrend.
This behavior confirms the potential to develop a sideways trading pattern in what becomes a directionless or moribund market.
This is also confirmed by the reduction in volatility. The daily ranges in the index activity - low to high - are small and about the same size anytime in 2016 until 2018 January 29. The general uptrend is not interrupted by days of significantly large daily ranges.
After 2018 February the market is dominated by large daily ranges. The daily range between the low and the high expands dramatically but in recent weeks stability has returned to the index. The daily ranges have reduced and are now similar to the period prior to 218 February. The difference is that this reduction in daily ranges is not associated with a strong and well supported trend behaviour. Instead they show a market that has slowed substantially. .
Volatility, momentum and trending activity have declined. The breakout, below or above, the trading band will set the next trend direction. The critical question is how the index behaves as it approaches resistance near 2790.
Trade war threats have not turned the uptrend into a downtrend, but they have neutered all trending activity.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.