Short-term Overbought
The S&P 500 Index has bounced from its 2600 support and currently is on a short-term overbought condition. This should be evident, since the price is near its 10-day high and close to the mean Bollinger Band line, which is heading down. A typical price action behaviour. The price goes beyond the -2BB line and, then, bounces off and heads up to touch its BB mean, before proceeding with the previous downward movement.
MACD
The MACD is an interesting indicator. Moving averages present a lag between the movement of the price and the actual bending of the average towards the direction of the price. The MACD is the subtraction of a slow moving average and a fast moving average, typically 26, 12. What happens with subtraction is the lag gets mostly eliminated. Therefore, the signals given by the MACD are quite accurate and timely.
Looking at the daily S&P 500 chart, we observe the MACD currently signals the beginning of a bullish leg.
Horizontal Channel
Mid-term, the daily S&P 500 prices have shaped a broad horizontal consolidation channel. Trerefore, the most probable outcome for the following days is the index to go back near its recent low and back up, to form a mid-term ascending channel similar to the one that started in April.
Next Monday
The current technical situation for Monday may call for long positions. We think that last Friday’s correction was just a weekend-driven close of open positions, caused by its short-term overbought condition. Nonetheless, Failure move upwards can’t be surprising, since, as we said earlier, it’s a common price action to bounce to the mean BB line and then resuming the main trend.
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