A Look at S&Ps for the New Week

The momentum divergences have been building up. Less stocks on the NYSE have been making new highs as prices head higher. On the most recent highs this month, less stocks in the S&P500 were able to make it above their 200 day moving average. And seasonality is just not on the side of the bulls right now.

These were all warning signs. But they are supplementary indicators to the all important price action. The divergences gave us a heads up that something smelled fishy, but it wasn't until prices broke down last week that we could really start leaning bearish. Today we're looking at what I think are the important levels in the S&P500.

The big break, in my opinion, was the 1670 level that represented the July 16th lows as well as the May closing highs. A break below that meant that the bulls were unable to hold on to the new recovery highs. When new highs are just temporarily made before failing quickly, it could be a recipe for disaster. And that's precisely the predicament that S&Ps find themselves in as we start the new week:

Now, last week the S&P500 settled right near the mid-June highs which also represents the 38.2% Fibonacci retracement from the June lows to the early August highs. How reliable is this support? Eh, it's something I guess. And the 50 day moving average is right here, which is making a lot of headlines these days.

If this level can't hold, which I'm thinking it won't, there is some churning that took place just before 4th of July weekend. This level coincides with the 61.8% fib retracement and is probably the last level the bulls have. If they can't defend those late June/early July lows, then a retest of the June lows, and potentially much more, comes into play.

To invalidate all of the above bearish analysis, I would want to see the S&P500 break above last week's highs. We also want to see the emergence of new leadership within US Stocks. The stock market loves leadership, and we simply don't have that right now. In fact, new weak links keep showing up. Most recently the Home Builders, REITS, Utilities, and now Staples have been getting hit pretty hard. Remember, these guys used to be the leaders. When your leaders start to fail, it can't be a good thing.

Time will tell....

Trade em well!

Tags: $SPY $SPX $ES_F