4 Things to Watch in the S&P 500

• Posted by Greg Harmon
• on May 20th, 2016

The S & P 500 is moving sideways, about 5% from its all-time high and has been doing so for 2 months. With this price action it is very interesting that investor sentiment is so bearish. In the AAII poll bullish sentiment was measured recently at just 19.3%. It was last at this level when the S&P 500 was at the February lows. All I can say to that is wow!

There are numerous calls for recession, some saying the economy is already there. Earnings reports are being cherry picked to follow the weak, not the strong. Amazon and Walmart knocked it out of the park, yet we want to focus on companies with dying business models like Macy’s and Nordstrom. I cant stop that. But what I can do is move away from that noise and look at price action.

The chart of the S&P 500 ETF ($SPY) below lets me do just that. When I look at it there are 4 things that pop out to me that the market is pausing not ready to crash. First is the momentum. The RSI at the top of the chart is pulling back, but through the entire 2 months of sideways action it has stayed in the bullish range, over 40.

The second is that the ‘pullback’ has retraced only 23.6% of the move higher from the February low. With bearish sentiment this is a show of strength. Next is that the price of the SPY remains over its 200 day SMA. This is the most basic of bullish signals. Bull above the 200 day and bear below it. Finally at the bottom of the chart is the accumulation/distribution. It shows strong accumulation from the February low that continued into early May. The slope of the accumulation/distribution is flat and maybe even slightly down, but there is no selling pressure.

These four things could all change next week or next month. But until they do the price action looks to be nothing more than digestion of the move off of the February lows. Its still “W” for Win until then.

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